A soft landing narrative has continued to shape sentiment in financial markets over recent days, supported by several factors. These include upbeat corporate earnings news, a sharp drop in oil prices (see chart 1), and weaker-than-expected inflation data (chart 2). However, concerns about global growth persist, particularly given the underwhelming economic data that’s been emerging from China (chart 3). While the monetary policy initiatives announced in late September were met with enthusiasm from investors (chart 4), subsequent fiscal policy measures have clearly fallen short of expectations. Back to a more positive note, the latest euro area bank lending survey suggests that the ECB's recent easing efforts, including this week’s 25bps rate cut, are starting to reap some benefits (chart 5). Meanwhile, ongoing optimism around the role of AI technology has also contributed to a soft landing narrative, despite the absence of clear productivity gains thus far (chart 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| Oct 10 2024Charts of the Week: Fed Up with Surprises
Last week’s stronger-than-expected US employment report have combined with some comments from FOMC members suggesting the Fed may be in no great hurry to reduce interest rates next year to generate a big repricing in financial markets over the past few days (see chart 1). Geopolitical uncertainty in the Middle East and its impact on supply chains have additionally been a key focus for many investors (chart 2). The outlook for China is also being more actively debated in light of recent policy initiatives designed to shore up the economy (chart 3). The plight of the euro area, and Germany in particular, is equally causing some concern (chart 4). All that said, the incoming survey data this week have offered some reassurance to those that are anticipating a soft landing for the world economy in the coming months (chart 5). That message was implicit too from the latest Blue Chip Survey of Economic Forecasters (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 04 2024Charts of the Week: Geopolitical Scarring
In recent weeks, financial markets have generally aligned with expectations of a soft landing for the global economy, facilitated by more accommodative policies from central banks (see chart 1). This week’s dataflow have largely reinforced these views (see chart 2) as have the communications from many policymakers. However, the escalation of geopolitical turbulence in the Middle East in recent days is now challenging this narrative. By potentially choking supply chains and raising risk premiums in energy markets, there could be growth and inflation-related consequences for the world economy in the coming weeks (see charts 3). This also serves as a reminder that there are longer-term headwinds that are placing a brake on global growth at present, including high real energy prices (chart 4), de-globalization pressures (chart 5) and lingering debt-related imbalances (see chart 6). And many of these issues could be exacerbated if the turmoil in the Middle East were to intensify.
by:Andrew Cates
|in:Economy in Brief
Global| Sep 26 2024Charts of the Week: Almost Singing the Same Tune
The incoming data over this week have painted a more downbeat picture of the global economic outlook. Latest flash PMI surveys, for instance, revealed broadly-based evidence suggesting that global growth is moderating, and that the euro area in particular is possibly sliding back into recession (chart 1). That more downbeat view was further supported over the past few days by some weakness in other data releases for US consumer confidence (chart 2), for South Korea’s trade and from separate business surveys for Germany and the UK (chart 3). Despite these weaker signals, financial markets have largely taken this news in their stride, possibly due to growing confidence that central banks, and especially the Fed, will still manage to engineer a soft landing for the global economy. China's unexpected announcement of new stimulus measures this week has also provided some reassurance (chart 4). However, several cyclical and structural challenges remain. Service sector inflation, for example, has remained stubbornly high in most major economies in recent months (see chart 5). That was certainly a key factor behind the Reserve Bank of Australia's decision not to initiate an easing cycle this week, in vivid contrast to many of its global peers. Additionally, what constitutes a "normal" level for inflation and real interest rates remains highly debatable, especially in light of recent and prospective supply-side transformations (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 19 2024Charts of the Week: Communication Challenges
The financial market response to this week’s decision by the Fed to lower its policy rate by 50 basis points suggests that investors are uncertain about what that decision might mean for the economic outlook. Longer-term US bond yields, for example, climbed a little (chart 1) while stock markets ended lower on the day though have since re-traced those losses. This uncertainty arguably underscores the great difficulty in calibrating monetary policy and in communicating subsequent intentions at present. As we discuss below, investors remain highly sensitive to incoming data, partly because monetary policy calibration has been equally data-dependent. And the fact that both growth and inflation data have been consistently undershooting expectations has amplified concerns that US (and global) monetary policy has remained too tight for too long (see charts 2 and 3). Still, there are currently very few macroeconomic indicators signalling a high likelihood of an imminent US recession. Equally—and more concerning—latest wage data suggest that labour markets could still be tight (charts 4 and 5). Beyond these cyclical challenges, a debate about where growth and inflation will ultimately stabilize has also been active, with significant uncertainty about what might be considered a “normal” level for nominal and real interest rates. Factors such as ageing demographics, climate change and the energy transition, together with ongoing geopolitical uncertainty are shaping that debate. But how trend productivity growth now evolves will also be key to this and crucial to monitor in the period ahead as well (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 12 2024Charts of the Week: Inflation Focus
The ECB’s decision to lower its key policy rates by 25 basis points this week, while widely anticipated, nevertheless underscores a shift in focus, with central banks now prioritizing economic growth and monetary stimulus. This marks a departure from the post-pandemic period when monetary policy was calibrated to curb inflation. In our charts this week we take a closer look at the global inflation scene. We highlight, for example, the growing confidence from economic forecasters in recent months that inflation would fall to target-friendly levels (chart 1). We move on to examine some of the factors that have driven inflation down to those levels, including easing supply side pressures and slower demand (chart 2). That labour market activity is now additionally beginning to weaken in some major economies, and most notably the US, has generated some pay-off too in the form of weaker wage inflation (chart 3). Where exactly inflation will now settle beyond the next few months is more nuanced and subject to a far more active debate. De-globalisation pressures and climate change, for example, might leave inflation higher for longer in the years ahead. On the other hand, other structural forces, such as the rise in remote working, might help to restrain wage and broader inflationary pressure (charts 4 and 5). Technological innovations, and particularly AI, could also play a significant role in the future by boosting productivity growth and reducing unit cost pressures. But while there is now greater certainty regarding the near-term inflation outlook, considerable uncertainty remains about the longer-term impact of these shifts on the global economy’s supply side (chart 6). They could either enhance efficiency, for example, or introduce new challenges, leaving their effects on inflation and cost structures highly unpredictable beyond the immediate future.
by:Andrew Cates
|in:Economy in Brief
Global| Sep 05 2024Charts of the Week: Back to School
With the summer vacation season now over in the Northern Hemisphere our charts this week shed light on recent and prospective developments in the world economy. Latest data have, on the whole, reinforced expectations that most central banks will loosen monetary policy in the immediate months ahead (chart 1). And that’s partly because incoming inflation data have been well-behaved (chart 2). In the meantime, forward-looking survey data have, with one or two exceptions, remained above the threshold that would typically generate recession alarms (chart 3). Soft landing narratives have, accordingly, remained in vogue. That being said, lingering imbalances—particularly in China (chart 4)—combined with growing concerns about an unwinding of Japan’s carry trade (chart 5), have left the risks to the global economic outlook skewed to the downside. Added to that, the potential profitability of technology companies and the broader health of the US economy are also now being more actively challenged (chart 6). Either way, central banks continue to face a complex mix of challenges in the period ahead, not least if political instability (e.g. in the US) were to hamper confidence in the final quarter of this year.
by:Andrew Cates
|in:Economy in Brief
Global| Aug 22 2024Charts of the Week: Growth Alert
We will not be publishing ‘Charts of the Week’ and our accompanying podcast next week. Financial markets have remained in much calmer waters in recent weeks following the bout of volatility that earmarked the first week of August. That’s partly thanks to the release of some reassuring inflation data together with some dovish signals from several central banks. However, concerns about the global growth outlook persist. That’s partly because incoming growth data have continued to surprise forecasters on the downside (charts 1, 2 and 3). Lingering uncertainty about how a further unwinding of Japan’s carry trade might amplify financial instability in the period ahead could also be weighing on confidence (chart 4). In the meantime, while incoming inflation data have offered some reassurance that monetary policy will be loosened in the US and Europe in the coming months, still-sticky service sector inflation is generating some doubt about the scope and the scale (chart 5). Finally, and looking beyond these cyclical issues, there remain several structurally-rooted headwinds that could be knocking growth optimism off course, including ageing demographics (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 15 2024Charts of the Week: Back to Inflation
Some stability has returned to financial markets over the past few days thanks to some inflation-friendly economic data, some dovish signals from several central banks, and most notably the Bank of Japan, together with some upbeat corporate earnings news. That said, heightened geopolitical tensions have kept investors anxious about the potential for a broader conflict in the Middle East. The recent narrowing of interest differentials between the US and Japan is additionally amplifying uncertainty about how a further unwinding of Japan’s carry trade might destabilise markets in the period ahead. In our charts this week, we examine some of the key messages from the latest Blue Chip survey of Economic Indicators (charts 1 and 2). We also highlight some of the key economic reports that have been published in the past few days, including Japan’s Q2 GDP figures (chart 3), and the latest inflation reports from the US and UK (charts 4 and 5). Lastly, we examine airport traffic statistics for the UK, Spain, and Germany (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 08 2024Charts of the Week: Summer Storms
Financial market instability has been in the ascendancy over the past few days as investors shunned risk assets and flocked to safe havens such as government bonds (chart 1). A key catalyst was last Friday’s weaker-than-expected US employment report (chart 2) but there have been other factors that have amplified investor concerns. These include last week’s decision by the Bank of Japan to lift its policy rate and the impact of this on so-called carry trades (chart 3) coupled with heightened anxiety about the potential profitability of big US technology companies (chart 4). Geopolitical concerns regarding the Middle East together with thin summer trading conditions have additionally played a role. All that said, markets have returned to calmer waters over the past 48 hours, partly thanks to some dovish comments from central bankers, and most notably BoJ Deputy Governor Uchida. Concern about the impact of financial instability on the world economy could, in any case, have been over-baked. This week’s US dataflow have certainly been more reassuring (chart 5). That inflation has been ebbing and there is now greater scope to relax monetary policy ought to also help allay recession fears (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 01 2024Charts of the Week: One Up, One Down and One No Change
Monetary policy normalisation has been a big theme over the past few days and, insofar as this signals that inflation is also returning to more normal levels, this has been welcomed by global investors. Most importantly the Fed has signalled a high likelihood that it will cut its policy rate at its next scheduled meeting in September and, in doing so, kick start an easing cycle (see chart 1). The Bank of England, in the meantime, has cut its policy rate by 25bps this week, a little earlier than some market participants had anticipated (chart 2). And on the other side of the equation, the Bank of Japan also sprung a surprise by unexpectedly lifting its policy rate and announcing a new plan to taper its bond buying programme (chart 3). While the timing of these communications and policy shifts has caught some analysts by surprise, there has been little to dislodge the view that most major central banks will embark on – or extend – an easing cycle over the next few months (chart 4). And this, coupled with recent evidence suggesting that labour market activity is softening and that inflation is subsiding, is reinforcing a soft landing narrative (chart 5). All that aside there is no shortage of factors that are challenging this narrative. One of these factors concerns the further flare-up of instability in the Middle East in recent days, which might amplify supply chain pressures and lift global energy prices in the period ahead (chart 6). Inasmuch as goods price disinflation has been a critical driver of the downward drift in broader consumer price inflation in the global economy, this could be of some significance in coming months, not least if service sector CPI inflation remains sticky.
by:Andrew Cates
|in:Economy in Brief
Global| Jul 25 2024Charts of the Week: It’s the Economy, Stupid!
Politics has continued to dominate the headlines in recent days and will doubtless remain a big focus in the immediate weeks ahead. In the background, however, incoming data have suggested the outlook for the world economy has been darkening (chart 1) probably because more restrictive policy settings are now more forcibly weighing on aggregate demand (charts 2 and 3). However, still-sticky service sector inflation (chart 4) could postpone any moves to (further) ease the stance of monetary policy not least if traded goods price inflation now begins to stir (chart 5). This week’s evidence suggesting robust demand for semiconductors has continued to support global trade also serves as a reminder that there are some tailwinds behind the world economy at present that are countering policy-related headwinds (chart 6).
by:Andrew Cates
|in:Economy in Brief
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