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BoJ & BoE to keep policy unchanged as the Fed cuts

16 December 2024

Chris Scicluna; Emily Nicol
  • The Fed looks set to cut rates by 25bps on Wednesday to take the FFR target range to 4.25-4.50%; but the FOMC’s updated dot-plot of members’ rate projections for coming years, as well as its policy statement and Chair Powell’s commentary, will be scrutinised for further signs that it will be more cautious in easing policy in 2025 and beyond.
  • While this morning’s UK flash PMIs suggested that economic activity continues to flatline, the Bank of England is still widely expected to leave Bank Rate unchanged at 4.75% (Thursday) as the MPC’s concerns about inflation persistence might be maintained by data showing still-elevated wage growth (tomorrow) and a pickup in the headline CPI rate to around 2½%Y/Y (Wednesday) in part due to unfavourable base effects.
  • Although recent Japanese economic data, such as last week’s Tankan survey results, appear consistent with a further rate hike, media reports suggest that the BoJ is in no hurry to tighten, and so it is currently expected to leave its policy rate unchanged at 0.25% (Thursday); nevertheless, inflation data (Friday) will likely report a pickup further above the 2.0% target in the headline and core rates alike, maintaining market expectations that monetary policy will be tightened in the New Year.

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ECB to cut rates again; US inflation in focus ahead of next week's FOMC meeting

09 December 2024

Chris Scicluna; Emily Nicol
  • After Japanese GDP growth in Q3 was revised up today to a respectable 1.2%Q/Q annualised, the BoJ and investors alike will closely watch its quarterly Tankan business survey results (Friday) for additional signs that business conditions are ripe for another rate hike, either next week or in January.
  • After a UK labour market survey today reported the steepest decline in job vacancies since 2020, October’s GDP data (Friday) will likely show only a very modest uptick in economic output to suggest no material improvement in the underlying trend in Q4 after growth slowed to just 0.1%Q/Q in Q3; the GfK confidence survey (also Friday) similarly seems likely to suggest that consumers are lacking festive cheer.
  • Data this morning showed that Chinese CPI inflation unexpectedly slowed to just 0.2%Y/Y in November, with producer prices down a marked 2.5%Y/Y, to underscore that deflationary risks remain elevated; in response, in a shift from recent years, China’s Politburo committed to a “moderately loose” monetary policy and “more proactive” fiscal policy in 2025. November goods trade figures (tomorrow) will flag China’s overreliance on exports for driving growth, with soft imports tallying with ongoing domestic demand weakness.

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Flash October PMIs & Japan's lower house election take centre stage

21 October 2024

Emily Nicol
  • The flash October PMIs from the major economies (Thursday) will provide an update on economic conditions at the start of Q4; while the surveys from the US, Japan and UK will likely point to ongoing expansion, the euro area composite PMI is expected to imply ongoing stagnation amid persisting contraction in Germany
  • In Japan, the main focus will be the Lower House election on Sunday with polls suggesting that the outcome could be the closest since 2009 when the LDP lost power to the DPJ. Indeed, with polls implying a loss of seats for both the LDP and its junior partner Komeito, the ruling coalition might even fail to garner a simple majority
  • Tokyo CPI figures (Friday) are expected to show that headline inflation fell 0.3ppt to a six-month low of 1.8%Y/Y due to lower energy prices. The BoJ’s preferred core measure, excluding fresh food and energy, is expected to move sideways at 1.6%Y/Y for a third consecutive month

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ECB poised for second consecutive cut, while September CPI lands

14 October 2024

Emily Nicol
  • The ECB’s seems bound to cut rates on Thursday for a second successive meeting and the third time since June, while the Governing Council’s forward guidance is likely to repeat that a data-dependent and meeting-by-meeting approach will be maintained
  • In the UK, highlights include September CPI (Wednesday) and August labour market figures (tomorrow); we expect headline inflation to fall below to 1.8%Y/Y, the lowest rate since April 2021 due in part to lower energy prices, but services inflation is also likely to ease allowing core inflation to drop; the unemployment rate is forecast to remain steady at 4.1%, but total pay growth is expected to drop to its softest since November 2020
  • In Japan, September CPI figures (Friday) are expected to show that headline CPI fell back around ½ppt to 2.5%Y/Y due to the extension of government utility subsidies, but the BoJ’s preferred core measure (excluding fresh foods and energy) is expected to remain steady bang in line with its 2% target; September goods trade and August tertiary activity figures (Thursday) are also due

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US payrolls, euro area inflation estimates & BoJ Tankan in focus

30 September 2024

Chris Scicluna; Emily Nicol
  • Flash estimates of euro area HICP rate look bound to fall below the ECB’s 2% target for the first time since mid-2021 
  • In the US, the September non-farm payrolls report, ISM surveys and August JOLTs data are due, while Fed Chair Powell is due to give a speech on the economic outlook later today
  • In Japan, despite a disappointing IP release in August, the BoJ’s Tankan survey is likely to suggest that conditions in the factory and services sector were little changed from Q2 to signal ongoing expansion

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