Archive

April 18, 2024
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BoE Should Move Behind the Fed and ECB

  • Hawkish surprises in the UK and US data pushed back rate cut pricing. Dovish comments from Bailey still weigh on BoE rates, inappropriately keeping pricing below the Fed.
  • Underlying inflationary pressures are worse in the UK, where wage growth is persistently high and not backed by productivity, causing the UK’s services inflation to be higher.
  • Prevailing policy settings don’t seem set to drive down UK inflationary pressures before the US. Unemployment is trending similarly, suggesting similar monetary tightness.

By Philip Rush

April 17, 2024
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EA Inflation Subdued Enough for the ECB

  • The final EA HICP inflation print confirmed the downside surprise to 2.4% from the flash release. Progress gets more challenging as energy and food base effects wear out.
  • Although services inflation is stuck at 4%, that is far better than the UK’s 6%, and the median inflationary impulse is broadly settling below the ECB’s target.
  • Labour costs might remain inflationary, but the ECB seems to have sufficient confidence to cut in June unless the data surprise significantly to the contrary.

By Philip Rush

April 15, 2024
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Europe, The Elections And The Economy

  • Although the centre seems set to hold in the upcoming European Parliament elections, a strong performance by nationalist parties, especially in France and Germany, could hinder Europe’s ability to revive its stagnant economy, especially in the face of new external threats.

By Alastair Newton

April 11, 2024
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ECB Loosely Tied to Cut in June

  • The ECB maintained its policy rates and did not pre-commit to a June cut. However, a few members wanted to cut now, and the statement added explicit conditionality.
  • Guidance now ties the ECB to a June cut, albeit with ongoing data dependence preserving wriggle room. Sticky services inflation and Fed rates won’t stay its hand.
  • Resilient data are rolling back Fed views to our September call, but we now doubt the ECB will want to delay past June. The BoE would probably only then wait until Nov-24.

By Philip Rush

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