May 07, 2021

HEW: vote counts to price prints

  • Our week began with the usual monthly summary of our core views (HEM: re-opening) and an expansion on why we don’t expect consumers to splurge all their recent savings (see UK: saving the precautionary motive). The BoE also assumes most of those savings are sat on but it only seems to be considering the bright side of the income distribution. It is now so optimistic about the recovery rapidly normalising to how it was before Covid that unemployment peaks a mere 0.5pp above the current rate and is back at these lows within a year. The sunshine and rainbows at the Bank seem to have blinded the MPC from seeing the clouds we worry about, not that we expected any dark epiphanies this week. On the contrary, the BoE tapered its QE programme broadly as we expected while also trimming its medium-term inflation projections like we forecast (see BoE: activist leaves the hawkish roost). Any active removal of stimulus remains a distant prospect in most of the world, but not in Norway (see NB reaffirms H2 hike intention).
  • There’s more vote-counting over the weekend but among a less optimistic crowd – i.e. the UK electorate. Initial results from Thursday votes revealed the Conservative Party increased its majority by winning the only contested Westminster seat. The opposition Labour party appears to have struggled to find support more generally too, perhaps not helped by its failure to do any actual policy opposition over the past year. Council seats affect the grassroots support available in future elections but aren’t a game-changer. Separate results for Scotland’s parliament could have much more permanent effects as a majority of MSPs backing independence would raise the pressure for indyref2. After that result, we’ll be watching final inflation releases in some core EA countries, plus Sweden and Norway, along with UK GDP.

April 30, 2021

HEW: BoE tapering preview

  • It has been a relatively quiet week for scheduled economic releases in our current coverage universe. Until the flash inflation releases, the Riksbank’s monetary policy report was the main one (see Sweden: Riksbank cautiously optimistic). The Fed’s deliberations loomed largely but aren’t something we cover directly yet. However, its ongoing accommodation of an extreme fiscal easing programme could potentially spill into other countries. Despite strong correlations in recent years, that need not extend to an exported inflation problem, as another temporary European de-coupling could occur (see Reflationary decoupling).
  • Thursday hosts all the major scheduled events for us next week, with UK elections (not general), the Norges bank (not MPR) and a big BoE day scheduled. The market relevance of the election is mostly through the vote in Scotland, given how that relates to the pressures for another independence referendum (see UK: election raising indyref2 risk). We are also watching the BoE for its new forecasts and the likely tapering of its asset purchases, as discussed in this week’s preview below.
  • In Heteronomics news, we are looking forward to rolling out our new email distribution system next week, probably starting with the Monthly (HEM) on Tuesday. Emails will still arrive from but via Amazon’s more scalable “mailed-by” pipes. The initial benefits for you are that emails will look a bit prettier. The ultimate point is the tight integration with our Amazon-backed services, so you will soon have more granular control over what emails you prefer to receive from us. That last bit gets really important when we make our flash “Robo-written” analysis available.

April 23, 2021

HEW: Riksbank preview

  • A deluge of UK data and the ECB were the main events for us over the past week. Most recently, there was an upside surprise in retail sales data rebounding from their underperforming period (see UK: retail keeps volatility for recovery). Employment also exceeded expectations, albeit with the health of the labour market too distorted by furlough to make them representative of reality. The tight labour market is stoking wages, which is nice for consumers but not for businesses and the necessary rebalancing (see UK: mid-winter freeze in employment). Inflation data were the disappointment, at least to the consensus as the RPI matched our forecast.
  • The ECB announcement was the primary policy news for us, perhaps because it was the only one in our coverage doing anything. It is continuing a path for purchases between its two recent paces and for longer than others are resisting tapering for, although it also struggles more with disinflation (see ECB: middle ground behind the world). It’s the Riksbank’s turn on Tuesday and we expect it to similarly continue its purchase plans. There are some slight hawkish pressures since February but a soft 2022 inflation outlook seems set to keep forward guidance in place that prevents the policy rate path from responding. See this week’s preview below for more on this, and the inflation section for a breakdown of our Euro area call ahead of the flash release next Friday.