Archive

October 15, 2024
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UK Cycle Tightens As Policy Eases

  • UK unemployment dropped by another 16bps in August to 4.0%, sustaining a 0.2pp fall on last year. Short-term unemployment looks even tighter as demand trends resiliently.
  • Resurgent employment and hours worked hawkishly drive the cyclical tightening while redundancies remain low and weekly vacancies trend slightly higher.
  • Slowing wage growth provides an excuse for the BoE to cut again in November but not to accelerate easing nor extend it far. A policy reversal may be needed in 2025.

By Philip Rush

October 08, 2024
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Terminal Rates Are Still Too Low

  • Excessively dovish expectations have repriced recently, but 2025 rates require almost another 20bps increase in the US and Euro area to reverse August’s dysfunctional drop.
  • Rate alignment across the US, UK, and EA limits FX opportunities. Previous contrarian views on USD strength no longer hold amid narrowing central bank policy differences.
  • Equity outlooks remain bullish, supported by monetary easing. Like in 1998, shallower rate cuts would eventually become bearish, but it only requires opportunistic hedging.

By Philip Rush

September 30, 2024
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UK Consumers Prep to Preserve Excesses

  • Benchmark revisions in the UK’s quarterly national accounts data for Q3 cut business investment to bumble around pre-pandemic levels, offset by higher consumption.
  • Households are still managing to raise their saving ratio to double their 2019 levels. Income has risen on their assets by a similar amount to gross savings.
  • All shifts appear consistent with the intertemporal demand substitution channel of monetary policy. Deferred demand should support the hysteresis of high neutral rates.

By Philip Rush

September 26, 2024
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Crowding Out Effects

  • Crowding out has regained relevance post-pandemic, as large fiscal deficits put upward pressure on interest rates, contrasting with the post-GFC liquidity trap narrative.
  • Global capital markets can no longer mask crowding out because simultaneous fiscal deficits in major economies constrain the potentially offsetting capital flow.
  • The UK is opting for state-led interventions, crowding out the private sector by design, while the US stimulates private investment via public spending initiatives.

By Philip Rush

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