Following a week in which the risks to the global economic outlook suddenly skewed to the downside, the pendulum has swung back again over the past few days. Confidence in a soft landing for the world economy has instead now re-surfaced partly thanks to firmer-than-expected global economic data, together with some solid corporate earnings reports from the United States. Additionally - and at the root of last week’s concerns - geopolitical tensions between Israel and Iran have eased, further bolstering investors' risk appetite. In our charts this week we delve into key insights from April's flash purchasing managers' (PMI) surveys (see chart 1). We also examine the recent rise in copper prices—often a reliable indicator of global economic activity—and now echoing the messages from those PMI surveys (chart 2). An additional echo (and indeed reason for) both improving global growth momentum and higher copper prices can also be found in the impressive growth in South Korea’s exports of semiconductors (see chart 3). Next, we explore monetary policy issues, particularly how traditional Phillips curve models have struggled to accurately predict the relationship between inflation and unemployment in recent years (chart 4). We conclude with an analysis of financial balances in the US and euro area, which offers some reasons for those struggles (charts 5 and 6).
Introducing
Andrew Cates
in:Our Authors
Andy Cates joined Haver Analytics as a Senior Economist in 2020. Andy has more than 25 years of experience forecasting the global economic outlook and in assessing the implications for policy settings and financial markets. He has held various senior positions in London in a number of Investment Banks including as Head of Developed Markets Economics at Nomura and as Chief Eurozone Economist at RBS. These followed a spell of 21 years as Senior International Economist at UBS, 5 of which were spent in Singapore. Prior to his time in financial services Andy was a UK economist at HM Treasury in London holding positions in the domestic forecasting and macroeconomic modelling units. He has a BA in Economics from the University of York and an MSc in Economics and Econometrics from the University of Southampton.
Publications by Andrew Cates
Global| Apr 18 2024Charts of the Week: Geopolitics, Oil, the IMF and China
Investors have grown increasingly cautious about the economic outlook in recent days, partly thanks to heightened geopolitical instability in the Middle East. That Fed Chair Powell has also expressed greater concern about the US inflation outlook has not helped, not least as higher oil prices (and the resilience of the US economy) had already been unsettling investors’ inflation expectations. The timing of this week’s publication of a more optimistic economic outlook from the IMF (see chart 1) also appears a little unfortunate. The extent to which those forecasts may be jeopardized will arguably now hinge on the interplay between geopolitical instability, oil prices, inflation and monetary policy (see charts 2, 3, 4 and 5). It is noteworthy, nevertheless, and against these considerations, that China’s economy has also been punching more positively according to some additional data that were published this week (see chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Apr 11 2024Charts of the Week: Oil in the Price
This week’s stronger-than-expected US inflation data have further dampened hopes that the Fed would swiftly lower interest rates in coming months. And this has led to increased anxiety in financial markets about the outlook for the US and broader world economy. In our charts this week we explore recent shifts in the consensus view toward global growth and inflation as revealed by the latest Blue Chip survey of Economic Forecasters (charts 1 and 2). Then, staying with inflation, we assess the big role that higher oil prices may have played in igniting interest rate concerns over the past few weeks (charts 3 and 4). One of the possible reasons for the recent run-up in oil prices is an improving global economy, some survey evidence for which we examine next (chart 5). Finally, and ahead of this week’s ECB meeting, we delve into some of the key messages from the latest bank lending survey from the euro area (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Apr 04 2024Charts of the Week: Something for Everyone
Renewed concerns about the US Fed's inclination to lower interest rates in coming months have triggered broader anxiety in financial markets over the past few days. This week additionally revealed some data that have possibly tilted the balance of risks to the global economic outlook to the downside again. For example, latest trade data from South Korea offered tentative evidence to suggest the recent upswing in global trade is losing momentum (see chart 1). This week’s euro area flash CPI data, meanwhile, revealed stubbornly high levels of service sector inflation, raising doubts about the European Central Bank's willingness to lower interest rates in the immediate weeks ahead (chart 2). Latest data for US money market inflows also suggest a big role for liquidity in driving financial markets in recent months (chart 3). That potentially exposes those markets to some vulnerability should financial conditions tighten again in the near future. Still, not all of the global macro dataflow has been negative. On a more positive note, indicators of economic policy uncertainty have lately decreased to multi-month lows (see chart 4). US business formation has also been showing robust growth over the past few months, which has coincided with a big pickup in productivity (see chart 5). And finally, China's economy has unexpectedly accelerated over the past few weeks, possibly due to an increased pace of credit formation (see chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Mar 28 2024Charts of the Week: The Soft Landing Narrative (Again)
Recent weeks have seen heightened optimism in financial markets that the global economy is on course for a soft landing. This optimism is rooted in a number of factors including stronger-than-expected economic data, dovish communications from several central banks alongside tame inflation outcomes in Europe and Asia. Putting this a little differently, the supply side shocks that drove inflation sharply higher in recent years may now be unwinding more quickly than had been expected. But there could equally – although far more contentiously – be greater optimism among investors that technological innovations (e.g. in Artificial Intelligence) are ramping up productivity growth.
Some of our charts this week offer some fresh perspective on this soft landing narrative. We look, for instance, at the decoupling that’s unfolded between global equity markets and broad measures of the money supply (in chart 1). We then review this week’s data for US durable goods orders and the specific evidence they reveal for still-solid US capital spending activity (chart 2). Additionally, we examine a recent survey from the euro area that indicates a slight decrease in consumer inflation expectations (chart 3). We next investigate evidence from last week's flash PMI surveys, which suggests that supply chain bottlenecks in Europe might be easing. Lastly, and turning to Asia, we assess the renewed interest from overseas investors in the region's equity markets (chart 5) and consider one of the structural factors behind this interest namely the potential for catch-up growth in India's economy (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Mar 21 2024Charts of the Week: Up, Down, and Somewhere in Between
The decisions from several central banks this week have, on the whole, amplified hopes that the world economy remains on course for a soft landing. Equity investors were certainly reassured by the absence of big changes to the Fed's interest rate outlook, despite some concerns following last week’s US inflation surprises. This week’s unexpected decision by the Swiss National Bank (SNB) to cut interest rates by 25bps, in the meantime, chimed with the idea that a global easing cycle has now commenced. In the other direction, moreover, the Bank of Japan’s cautious move toward policy normalization met with a muted financial market response, possibly because it was softened by some dovish communications. In our charts this week we assess some of these financial market reactions (in charts 1 and 2), we review recent global inflation trends (in chart 3), and we then examine China's credit growth (chart 4), and its possible impact on other Asian economies (in chart 5). Finally, we assess 2023's equity market inflows in a selection of major economies, as a prelude to a forthcoming webinar with EPFR.
by:Andrew Cates
|in:Economy in Brief
Global| Mar 14 2024Charts of the Week: Not Too Shocking
With little to destabilise financial markets over the past few days, soft landing narratives have remained in vogue. While this week’s US CPI report was certainly a little stronger-than-anticipated, other indicators, including the latest UK labour market report, were more benign. In our first two charts this week we look in more depth at, respectively, those US CPI and UK labour market numbers (charts 1 and 2). We then shift our focus to Asia and, in light of this week’s more positive GDP report for Q4, shed some light on the contribution that productivity growth has been making to Japan’s economic performance. We look next at China and specifically at its status as a leader in the production and sales of electric vehicles (chart 4). Finally we take a step back and review shifts in consensus growth and inflation forecasts for several major countries over the past few months and what those adjustments reveal about the nature of their economic and policy challenges (charts 5 and 6).
by:Andrew Cates
|in:Economy in Brief
Global| Mar 07 2024Charts of the Week: Goldeneyes
The equity market rally that kicked off in late October has recently taken a breather. Nonetheless, an abundance of optimistic narratives continue to support the rally’s rationale and prospects for an extension in the near term. This week’s charts provide some insights into some of these narratives. They include, for example, a renaissance in US manufacturing investment (chart 1), optimism about AI and its impact on the semiconductor sector, (chart 2), positive global growth surprises (chart 3), and receding inflationary pressures (chart 4). A more favourable backdrop for equities is another factor that has supported Japan’s stock market in recent weeks (chart 5). Finally, recent rallies in other assets, including cryptocurrencies and gold, hint at robust financial market liquidity potentially driving these gains as well (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Feb 29 2024Charts of the Week: When the Chips Are Up
Prospects for a swift pivot toward looser monetary policy in the US and Europe have been further diminished by some stronger-than-expected inflation data in recent days. Equity market sentiment in most major economies, however, has remained fairly resilient, buoyed by a positive stream of corporate earnings news. In our charts this week and following the release of this week’s surveys we look at the gulf that still exists between consumer confidence in the United States compared with Europe (chart 1). Since an outperforming US economy relative to Europe could be one reason for that confidence disparity, we focus next on technology matters and specifically on the rapid growth of US investment in software over the past several years (chart 2). We then stay with technology and look at the improving demand and supply balance in the semiconductor sector that’s suggested by inventory levels in several Asian economies (chart 3). Next, we turn to Europe with some perspective on the outperformance of the Italian bond market that’s unfolded in recent months (chart 4). We then stay with Europe by offering some colour on the weakness of this week’s money supply data from the euro area (chart 5). Then, and finally, we throw some light on post-pandemic consumer spending patterns in the UK (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Feb 23 2024Charts of the Week: Navigating Cyclical and Structural Headwinds
A quiet economic calendar coupled with holidays in North America and much of Asia have left markets struggling for direction in recent days. This week’s US FOMC minutes revealed concerns among some members about reducing policy rates too soon. And in our charts this week, we first examine the shift in investors' expectations for those policy rates that has unfolded in the early weeks of this year (chart 1). Surprisingly strong US inflation data is one reason why a tighter-for-longer campaign is now under more serious consideration. Seasonal data variability at this time of year, along with recent fluctuations in energy prices (see chart 2), are undoubtedly being weighed by policymakers at present. But so too is evidence suggesting that labour markets have been tight and that wage pressures in the US and Europe have, hitherto, been too strong. Still, as our next two exhibits illustrate, more inflation-friendly labour market data have emerged in recent days (see charts 3 and 4). Against this backdrop, equity markets in most major economies have remained resilient, partly thanks to optimism about new technology (e.g. AI). This optimism may have been further bolstered by this week's trade data from South Korea, which highlighted a resurgence in its semiconductor trade (see chart 5). Lastly, we turn our attention in our final exhibit of the week to the global economy's social progress and the worrisome findings released by analysts from the Social Progress Imperative last week (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Feb 15 2024Charts of the Week: Inflation Alarm
Stronger than expected US inflation data this week has dampened hopes that the Fed might swiftly reduce interest rates in the coming months. This comes on the heels of a flurry of firmer-than-expected US economic data in recent weeks that had previously undermined the case for an early pivot toward looser monetary policy. Still, as we illustrate in several of our charts this week, evidence is accumulating to suggest that tighter monetary policy is taking a toll on the world economy. This week’s data from the UK and Japan, for example, revealed a second consecutive contraction in GDP in Q4 2023. Both economies have, therefore, now joined Germany in a technical recession (chart 1). The fragility of domestic demand growth in Japan in recent months will doubtless cause concern and might further delay a normalization of the BoJ’s monetary policy (chart 2). Growing structural rigidities in the labour market might, however, delay a pivot toward looser monetary policy in the UK if this keeps wage inflation uncomfortably high (chart 3). More generally, the latest Blue Chip survey of economic forecasters potentially reinforces the case for a relaxation of monetary policy in other major economies thanks to a reduced inflation consensus combining with a lower growth consensus (charts 4 and 5). But this clearly does not apply to the US where firmer growth expectations are combining with higher inflation expectations. The latter, moreover, could be subject to more upside risk following this week’s January CPI report (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Feb 07 2024Charts of the Week: Production versus Consumption
Last week's surprisingly strong US employment report has diminished investors’ expectations that central banks would quickly shift to more relaxed monetary policies. And this has caused bond yields to spike sharply higher in recent days. Nonetheless, equity market sentiment across most major economies has remained resilient, buoyed by a consistent flow of positive corporate earnings news. In our charts this week, we examine the extent of monetary policy relaxation that’s anticipated by the consensus for the world's leading central banks (chart 1). Given that recent and expected disinflation trends are crucial to these forecasts, we also assess how recent US survey data align with a projected decline in inflation in coming months (chart 2). We then turn our attention to ongoing tensions in the Middle East and disruptions in Red Sea shipping lanes, offering insights into supply chain challenges and global shipping costs (chart 3). Surprisingly positive news regarding the global economy is a further takeaway from our analysis of investor sentiment and, to a lesser extent, Germany's factory orders (charts 4 and 5). This contrasts, however, with unexpectedly weak retail spending reports this week, including from Australia (chart 6).
by:Andrew Cates
|in:Economy in Brief
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