Financial market sentiment has improved over the last few days thanks to reassuring communications and targeted policy support from central banks together with a high profile acquisition of a troubled institution in the Swiss banking sector. Although the Fed has subsequently enacted a 25bps rate hike, Chairman Powell has further assuaged market fears by suggesting the US tightening cycle is nearly complete. Against that backdrop our first three charts this week dwell on financial instability and how this can be traced, in part, to central banks’ tightening campaigns. The trade-offs for policymakers, however, are now far more challenging, not least as inflation is proving to be far more sticky in some major economies (e.g. the UK) than expected (see chart 4). In the meantime, there remains little evidence yet of a revival in the world economy, notwithstanding the pick-up that might have been expected in some areas by now from China’s re-opening (see charts 5 and 6).
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| Mar 24 2023
Charts of the Week (Mar 24, 2023)
- Global| Mar 17 2023
Charts of the Week (Mar 17, 2023)
Last week’s failure of a US bank and growing fears about the underlying health of the world’s broader banking sector have dominated the financial headlines in recent days. A trend toward risk aversion has clearly been in the ascendancy. And central banks are now under growing pressure to offer targeted support and more generally to halt their tightening campaigns in order to restore financial stability. For while banks’ funding models and regulatory oversight are now being actively discussed, a key root of the present crisis concerns the synchronized – and relatively aggressive – campaign from central banks to squeeze out inflation. In our first two charts this week we illustrate how financial stress has been building and how markets have re-assessed their expectations for Fed policy in recent days. Our next two charts, however, illustrate how those expectations have been shifting in ways that are somewhat counter to the global economic scene. Still, at the margin, incoming data over the last few days suggest that labour market activity and inflation have continued to cool, which should alleviate the current dilemmas for policymakers. Our fifth chart, showing high frequency indicators of hiring activity, offers one example of that trend. Our final chart, showing how global air passenger traffic appears to be slowing down as well, is also possibly a sign that COVID-related distortions to the world’s economic fabric (and their inflation implications) are now normalising as well.
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- Global| Mar 10 2023
Charts of the Week (Mar 10, 2023)
Testimony from Fed Chairman Powell has dominated macroeconomic discussions so far this week (and ahead of the latest US payrolls report later today). Against a backdrop where the US economy has been showing unexpected resilience and firmer-than-expected inflation it was perhaps unsurprising that Powell suggested the fed funds rate will likely have to be increased more than previously expected. Still, as our first chart this week suggests, there was some evidence in this week’s February ADP report to suggest that smaller companies are now feeling the pinch from tighter monetary policy. And as our next two charts suggest, the underlying health of the broader world economy is not demonstrating nearly as much resilience at present as the United States. In the meantime, while hopes are high that China’s reopening might marshal a firmer impulse to global growth, this week’s announcement at the National People’s Congress of a 5% growth target for 2023 was lower than many China economists had expected (and we offer some context to this in our fourth chart). As for the euro area, some good news emerged for the ECB this week from its latest consumer expectations survey, specifically via a big drop in medium-term inflation expectations (see our fifth chart). Finally, on financial market matters, we illustrate in our sixth chart the still-heavy role that monetary policy has been playing in the valuation of financial assets.
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- Global| Mar 03 2023
Charts of the Week (Mar 3, 2023)
Having begun 2023 on a more upbeat footing, the mood in financial markets has continued to sour over the past few weeks. Incoming data suggest that labour markets are too tight and that inflation is too high for comfort, especially for central banks. And this combination has added to the case for further policy tightening. Our first chart this week illustrates how financial markets have specifically re-priced the trajectory of Fed policy in response to recent data. But we illustrate too – via charts 2 and 3 – that tighter policy is now choking off domestic demand in the US and Europe which ought to help restrain inflation in the months ahead. As we further illustrate in charts 4 and 5, global sources of inflationary pressure from traded goods sectors (e.g. semiconductors) are also now waning quite sharply, thanks to a recent reconfiguration of supply and demand. Finally, and on a different theme, we look at tourist arrivals in Thailand in chart 6 in order to examine whether China’s re-opening is beginning to exert an impact on domestic activity in South-East Asia.
- Global| Feb 24 2023
Charts of the Week (Feb 24, 2023)
Financial markets have been pricing in tighter-for-longer monetary policy settings in recent weeks thanks to some firmer-than-expected US data. And this is now reversing the shift from a hard to a soft landing consensus that had begun to form in January. Our charts this week, however, turn the focus back onto some of the more positive trends that have established themselves in recent times. We look, for example, at falling European energy prices (in chart 1), ebbing core inflation rates (in chart 2), and at an arguably more realistic consensus for US profits and interest rates (in chart 3). We then hone in on the punchy US fiscal policy impulse that’s being enacted for the coming years (in chart 4) and how this (relative to elsewhere) might be affecting interest rates and the US dollar (in chart 5). Finally - and from a longer-term perspective - we throw some light on how costs of various renewable energy sources have been falling over the past few years (in chart 6).
- Global| Feb 17 2023
Charts of the Week (Feb 17, 2023)
The shift toward a soft landing consensus that had been in vogue since the start of this year has suffered some setbacks over the past two weeks. Last week’s strong US jobs data combined with this week’s firmer-than-expected US CPI report have been the principal challenges to that view. Still-hawkish communications in the meantime from a number of central bankers have additionally thrown some salt onto the wounds. Our first two charts this week home in on the recent evolution of consensus growth forecasts for 2023 and how these contrast with high-frequency indicators of economic activity. China’s re-opening is another closely-watched theme at present and we offer some perspectives on this in our third and fourth charts. Then, returning to the US, we contrast indications about recession risks from a couple of indicators in our fifth chart. And finally we make a nod to this week’s UK labour market report and its suggestion that wage pressures could now be easing, in our sixth chart.
- Global| Feb 10 2023
Charts of the Week (Feb 10, 2023)
Last Friday’s much stronger-than-expected US jobs report has set the tone for financial markets in the past few days. But it has not yet meaningfully derailed the more upbeat narrative concerning inflation and monetary policy that’s been in vogue since the start of this year. Our first few charts this week chime with the idea that inflation is rolling over and that tighter policy settings are taking a toll. Business sentiment data, however, are now exhibiting an unexpected improvement as we illustrate in our fourth chart. This improvement stands in contrast to harder (albeit more backward looking) data for industrial production, which we underscore in our next chart. Lastly the UK has been a notable underperformer on the industrial production front in recent years, so we dig a little deeper into its relative performance in our final chart this week.
- USA| Feb 03 2023
Charts of the Week (Feb 3, 2023)
Central banks have been dominating the financial headlines in recent days but appear – so far – to have generated few big surprises. In the meantime a trend toward weaker activity and ebbing inflation has remained in vogue according to this week’s data but with a small bias nevertheless toward firmer-than-expected growth. Our charts this week offer some further perspectives on these themes with a focus on central banks in our first two charts. We then home in on US wage pressures and global labour market activity in, respectively, our third and fourth charts. The ECB’s tightening campaign and its impact on the European banking sector is the focus in our fifth chart. And in our final chart we look at the outperformance of GDP growth in the euro area in 2022 relative to the US and China.
- Global| Jan 27 2023
Charts of the Week (Jan 27, 2023)
The mood in financial markets has continued to improve over the past few days and investors remain a little more upbeat about the outlook for the world economy than they were toward the end of last year. Our charts this week offer some further perspectives about the reasons for, and response to, this improvement. In our first two charts, for example, we look at US and broader global data surprises and how the US Treasury market has responded to these. Then, on the inflation front, we provide an update on supply chain pressures and how these have been affecting inflation in our third and fourth charts. Clearly a key factor that’s been amplifying supply chain pressures in recent months concerns labour markets. So, in our final two charts, we offer some colour on, respectively, labour market shortages in the UK and labour force participation rates in Japan.
- Global| Jan 20 2023
Charts of the Week (Jan 20, 2023)
The messaging from this week’s raft of economic data has painted an increasingly familiar picture of the global economic scene. Headline inflation is finally easing off its highs in large part thanks to ebbing energy prices. But last year’s high levels of inflation and the global trend toward a tighter monetary policy that they sparked are now exacting a heavier toll on economic activity. Our charts this week drill into how financial markets have been responding to these themes with a spotlight on the US dollar (chart 1). With the latter in mind, we illustrate too the recent stickiness of core inflation in several advanced economies compared with the United States (chart 2). We also illustrate how US capex has been holding up surprisingly well, at least so far (chart 3). On the policy front and with this week’s unchanged BoJ decision in mind, we highlight the correlation between JGB yields and the central bank’s bond-buying initiatives (chart 4). As for China, and notwithstanding a much firmer-than-expected smattering of Q4 data earlier this week, we highlight how credit growth has continued to decelerate in recent months (chart 5). Finally and with a new energy database from Haver Analytics in mind, we look at the share of renewables in the power generation of several major economies (chart 6).
- Global| Jan 13 2023
Charts of the Week (Jan 13, 2023)
Heightened optimism that inflation has turned a corner and that central banks will shortly pivot away from restrictive monetary policies has been a dominant theme in financial markets since the turn of the year. Our first two charts this week certainly underscore the importance of inflation expectations to the economic and financial market outlook at present. And this week’s economic data have, on the whole, also chimed with the idea that the global inflation has now peaked as we illustrate in our third and fourth charts. China’s re-opening and its impact on the world economy is another big macro theme for investors at present and we look at what high frequency indicators are revealing about its economic activity at present in our fifth chart this week. Finally, and with China’s economy partly in mind, we look at some data for world trade flows in our final chart this week and what they reveal about a de-globalisation of the world economy.
- Global| Dec 02 2022
Charts of the Week (Dec 2, 2022)
Incoming economic data have continued to paint a more settled picture of the world economy over the past few days and especially on the inflation front. Of most note were a weaker-than-expected batch of preliminary inflation data from Europe for November, which have added some thrust to the idea that the global inflation cycle has now peaked (see charts 1 and 2). Incoming survey data, however, attest to still-tight labour market conditions which ought to perhaps temper expectations about an imminent pivot toward looser monetary policy (see chart 3). In the meantime, downside risks to the outlook in China have accumulated thanks to enduring challenges with COVID and a recent flare-up of social instability (see charts 4 and 5). Finally, we note that geopolitical risks appear to have been fading of late relative to outsized levels from earlier this year (see chart 6).
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