Archive

HEW: Dovish Data Dumps

• Inflation data broadly disappointed expectations over the past week. The labour market news was more mixed, but higher UK and US unemployment rates raise eyebrows.
• Policymakers behaved themselves, with no surprises and wide dispersion, including a BOJ hike, while the BoE delivered the finely balanced hawkish cut we expected.
• The release calendar adopts a holiday stance for the next few weeks, with only UK and US Q3 GDP data out before Christmas. This publication will be back on 9 January.

By Philip Rush

BOJ: Measured Steps Toward Normalisation

• A hike to 0.75% was delivered as expected, reflecting confidence in wage-led inflation momentum, though real rates remain deeply negative and uncertainty around trade policy and wage sustainability persists.
• Future tightening hinges critically on 2026 spring wage negotiations reaching 5%+ and underlying inflation remaining firm as food-price effects wane. Some dissenting board members questioned inflation's near-term durability.
• Real interest rates at significantly negative levels permit gradual tightening toward the estimated 1-2.5% neutral range, with markets pricing 1.0% by mid-2026. Limited runway and external risks may constrain the pace of normalisation.

Mexico: Closing the Easing Door

• Banxico cut by 25bp to 7%, broadly in line with expectations, but signalled a de facto pause with a more data‑dependent approach to future easing.
• Sticky core inflation and upward‑revised forecasts for early 2026 mean additional cuts are unlikely before mid‑2026, keeping real rates above neutral for now.
• A 4–1 split vote and fiscal/trade‑related upside risks to inflation argue for a prolonged hold in Q1 2026, limiting the scope and speed of the remaining easing cycle.

ECB: Wishfully Rolling Disinflation

• Stronger wage and service price inflation have shrunk the Q1 target undershoot to only 0.1pp, removing the space that doves hoped might free the ECB to cut again.
• Spending over half the year on hold and in a “good place” creates an inertia that will be hard to break towards another cut. We still see the ECB’s easing cycle as over.
• Rolling the disinflationary trend back a year helps soften hawkish pressures, but losing this amid ongoing strength seems more likely to push the ECB into a hawkish direction.

By Philip Rush