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Latest Commentary
Latest Commentary
Canadian Economy Outperforms Forecasts, Lifting Loonie
28 March, 2024
The Canadian economy grew more quickly than expected in the first two months of the year, helping reduce market-implied odds on an imminent pivot to easing at the Bank of Canada. Numbers released by Statistics Canada this morning show real gross domestic product topping forecasts with a 0.6 percent expansion in January, followed by a potential 0.4-percent gain in February.
The services sector led...
Markets Cut Risk Into Holiday Weekend
28 March, 2024
Trading ranges are tight and liquidity levels are low across financial markets this morning as participants square positions into what could be an eventful holiday weekend. Short-term Treasury yields are inching higher, oil prices are up slightly, and equity futures are edging into a softer session ahead of tomorrow’s US personal consumption expenditures print – which will land amid a Good Friday...
Caution Prevails as First Quarter Winds Down
27 March, 2024
Financial markets remain broadly rangebound this morning as month- and quarter-end position squaring drives investors to cut risk. The dollar is essentially unchanged, Treasury yields and crude prices are softening, and North American equity bourses are setting up for a weaker open.
More evidence of strength in the US economy was delivered yesterday. Data releases showed home prices climbing at the...
Holding firm
26 March, 2024
• Limited moves. Equities mixed, bond yields drifted back, & the USD is little changed. AUD is close to where it was this time yesterday.• Low vol. Measures of equity & FX volatility are now well below average. Markets could be complacent to the macro & geopolitical risks still lurking.• AU CPI. The monthly CPI indicator due today. More info on services is provided. We think inflation could...
Waiting game
25 March, 2024
• Quiet start. Global equities mixed. Bond yields drifted higher. USD a little softer. AUD has clawed back a bit of ground over the past 24hrs.• CNH & JPY. Authorities in China have pushed back on recent CNH weakness. Rhetoric from Japanese officials about JPY weakness has also ramped up.• Data flow. US durable goods orders in focus tonight. Locally, the monthly CPI indicator is due tomorrow &...
Liquidity Ebbs Into Holiday-Shortened Week
25 March, 2024
The trade-weighted dollar is holding steady and equity futures are poised to open lower as market participants prepare for a lower-intensity, holiday-thinned trading week. Treasury yields are ticking higher, oil prices are up modestly, and risk-sensitive units like the Canadian dollar are trading sideways ahead of a week dominated by the release of the Federal Reserve’s preferred inflation indicator...
Can the stronger USD last?
24 March, 2024
• Firmer USD. US equities consolidated, bond yields dipped, while the USD’s upturn continued despite some better than expected European data.• Weaker CNH. A catalyst behind the USD strength was the weaker CNH. Given its tight correlation the lift in USD/CNH exerted more pressure on the AUD.• Event radar. US durable goods orders & the PCE deflator are due. There are also a few Fed speakers....
Dollar Strikes Back
22 March, 2024
Defying market expectations yet again, the greenback is trampling everything in its path as it heads toward a second week of gains. With global central banks on a synchronous easing trajectory, turbulence in China weighing on currencies across Asia, and US equity markets marching to new highs, rate differentials and global capital flows remain clearly dollar-supportive.
Mexico’s peso is retracing...
Central banks starting to diverge?
21 March, 2024
• USD bounce. USD Index recouped yesterday’s post US Fed driven falls. Solid US data & developments in Europe weighed on the major European currencies.• Dovish Europeans. No more members of the BoE are calling for rate hikes. The Swiss National Bank became the first G10 FX central bank to cut this cycle.• AU jobs. Employment jumped & unemployment fell to a multi-month low. Supports our...
Central Bankers Turn Dovish, Markets Rally
21 March, 2024
Financial markets are in an ebullient mood after Federal Reserve officials said they still expect to cut rates three times this year, with disinflationary forces expected to resume in coming months. All three major North American equity indices closed at record highs and risk appetites roared back yesterday when Chair Powell avoided pushing back on easier financial conditions, and said recent price...
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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...