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Latest Commentary
Latest Commentary
March Madness Begins
18 March, 2024
Well, madness for economics nerds anyway. Equity futures are setting up for a modestly-positive open, ten-year Treasury yields are holding steady near the 4.3 percent mark, and most major currency pairs are range-bound ahead of a week in which central banks in Australia, Brazil, Japan, Mexico, Sweden, Switzerland, the UK, and the United States will deliver rate decisions.
Tomorrow morning, the Bank...
Central banks in focus
17 March, 2024
• Waiting game. Ahead of this week’s key events FX markets consolidated on Friday. USD index tracked sideways. AUD near its 200-day moving average.• Event radar. BoJ, RBA, US Fed, & BoE decisions due this week. China data released today, while NZ GDP & AU jobs due on Thursday.• Central banks. Further bursts of volatility probable. Will the BoJ hike rates for the first time since 2007?...
Price Action Muted As Inflation Worries Re-Emerge
15 March, 2024
Chastened investors are heading into the weekend on a cautious footing after two inflation readings suggested that price pressures in the US economy remain stubbornly elevated, further undermining hopes the Federal Reserve could soon begin cutting rates. Markets tumbled during yesterday’s session after data showed producer prices increased in February by the most in six months as the cost of goods...
US stagflation vibes
14 March, 2024
• Stagflation worries. US retail sales underwhelm while stronger producer prices raised concerns about the inflation outlook. US yields rose. USD a bit firmer.• AUD slips. Higher US yields exerted pressure on the AUD. But the intra-day swing was below average. Focus today will be on Japanese wage outcomes.• Upcoming events. BoJ, RBA, US Fed, & BoE meet next week. Will the BoJ finally move? On top...
Currency Volatility Flattens In Run-Up To Fed Meeting
14 March, 2024
Happy Pi Day, one of the days on which markets behave irrationally. The other days are… all of them. The dollar is holding steady ahead of the last pieces of data that could sway policymakers at next week’s Federal Reserve meeting. Treasury yields are essentially unchanged, with the ten-year yield up roughly 11 basis points this week, equity futures are setting up for modest gains at the open, and...
Currency Market Focus Turns Toward Fed Dot Plot
13 March, 2024
The greenback remains modestly stronger after yesterday’s data showed inflation running too hot for the Federal Reserve’s comfort. Equity investors – largely prepared for a repeat of January’s stronger-than-expected print – shrugged and kept bidding indices higher. But with core price growth topping expectations for a second month in a row, currency traders doubled down on bets interest...
Hotter US CPI taken in stride
12 March, 2024
• US CPI. US inflation slightly higher than expected. But markets were more prepared. Equities rose, & while bond yields ticked up, USD strength was minimal.• Details matter. Some of the US CPI strength likely to reverse. US Fed to remain cautious about rate cuts near-term, but that is already priced into markets.• AUD & JPY. AUD dipped a touch, & USD/JPY rose. Japan’s Rengo wage...
Well-prepared markets take hotter-than-expected inflation print in stride
12 March, 2024
Consumer price growth accelerated in the United States last month, suggesting that January’s hotter-than-expected print signalled a re-acceleration in underlying inflation pressures, and raising the odds on a more hawkish outlook from the Federal Reserve at next week’s policy meeting. According to data published by the Bureau of Labor Statistics this morning, the core consumer price index – with...
Markets Hunker Down Ahead of Inflation Release
12 March, 2024
The dollar’s selloff is slowing ahead of inflation numbers that could have a direct bearing on the policy outlook presented during next week’s Federal Reserve meeting. Equity futures are trending upward, but Treasury yields are holding flat, and high-beta currencies like the Canadian dollar are coming under modest selling pressure as traders cut risk.
February’s consumer price index is expected to...
Another US CPI jolt looming?
11 March, 2024
• Mixed markets. Equities eased a little while bond yields nudged up overnight. Currencies were well contained. AUD consolidated near ~$0.6610.• US CPI. US inflation data in focus tonight. Will the February US CPI data confirm or disprove the January reading as an anomaly?• Expectations matter. Analysts look to be factoring in a greater chance of an upside surprise. This suggests a bigger market reaction...
Featured Views
Featured Views
The 'soft landing' consensus has grown overpowering.
15 December, 2023
The belief among investors that the Federal Reserve would cut rates aggressively in 2024, even in the absence of a growth or employment shock had become near-universal even before the central bank’s decisively-dovish pivot at the December policy meeting.
Inflation is fading quickly. Energy and manufactured goods prices are still coming down, and our estimates suggest that the Fed’s preferred measure—the...
US economic outperformance is likely to fade.
15 December, 2023
Markets risk turning overoptimistic on underlying trends: Fiscal support is turning negative, consumer spending is running on fumes as savings rates run well below, and pre-pandemic norms diffusion indices are pointing to a renewed rise in unemployment rates.
Non-farm employment diffusion indices, share of industries reporting growth (unchanged cut by half)
As the lagged effects of monetary...
The euro area is coming in for a hard landing.
15 December, 2023
A series of data releases in December showed growth slowing more aggressively in the early fourth quarter as activity in the manufacturing and services sectors weakened. The decline in year-over-year data appears consistent with a recessionary downturn.
Citi Economic Data Change Indices
To some degree, the economy is suffering from lagging effects associated with last year’s energy shock, exposure...
Disinflationary forces are growing more powerful.
15 December, 2023
The global inflation shock is fading fast. After soaring for the better part of two years, food- and energy-driven headline price measures are coming down more quickly than expected, and core inflation rates (i.e., excluding food and shelter) have tumbled across all major developed economies.
With supply chains now largely repaired, Western consumer demand slowing, and the Chinese government pouring...
Recession risks remain significant.
15 December, 2023
The British industrial sector remains mired in contraction, house prices are falling, labour markets are softening, and a broad array of underlying growth indicators are pointing to slowing momentum. With the full impact of higher policy rates yet to hit home, most forecasters currently expect the economy to exhibit stagflation-esque characteristics in 2024 – consensus estimates show inflation...
Policy settings look too tight.
15 December, 2023
A range of measures designed to approximate the euro area neutral rate are indicating that policy rates are becoming increasingly restrictive, and credit flows within the bloc’s bank-dominated financial system have collapsed, with October’s data showing the biggest 12-month drop in lending to businesses and households since the euro crisis.
12-month change in loans by euro area monetary financial...
Economies are losing momentum.
15 December, 2023
Most of the major industrialized economies are showing signs of slowing. Although wages are beginning to outpace inflation in many countries, real household purchasing power remains weaker across most income strata. Excess savings, accumulated during the pandemic, have largely evaporated, and consumers are increasingly tapping sources of credit to sustain spending. The legacy of this year’s sharp rise...
Inflation risks are looking less idiosyncratic.
15 December, 2023
It is increasingly obvious that price pressures in the UK have simply lagged their international counterparts in this cycle, and are likely to fade at a relatively comparable pace in the early new year. All-items inflation rose just 3.9 percent in the year to November, the slowest pace since September 2021, and core – which has trailed headline inflation in all major developed economies, fell...
A modest reversal could unfold.
15 December, 2023
Fading inflation pressures should boost real household incomes in the months ahead, helping support a stronger-than-anticipated rebound in consumer demand within key European markets. Industrial production levels might eke out a modest improvement if Chinese stimulus spending begins flowing in earnest and global inventory cycles normalize. And as rate expectations fall, financial conditions in the...
Financial conditions are easing.
15 December, 2023
With the balance of inflation risks swiftly tilting to the downside, markets expect central banks to begin normalizing policy settings in the coming months. Federal Reserve Chair Jerome Powell’s comments during a mid-December post-decision press conference were widely read as implying a willingness to follow canonical policy guidelines—like the Taylor Rule—in moving even before evidence of a downturn...