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Market Views

The 'soft landing' consensus has grown overpowering.
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.
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.
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.
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.
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.
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...





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