Archive

HEM: Rolling Resilience

• Activity remains resilient, and labour markets are tight
• Underlying price and wage inflation mostly track >2%
• Doves assume this regime breaks, but it isn’t happening
• Cuts can keep rolling later and may never materialise
• Rate hikes are more historically usual after pausing

HEW: Payrolls Waking Up Rates Pricing

• Dovish rate pricing had been ignoring resilient data until US payrolls delivered a rude awakening. We believe rates remain too dovish relative to reality and equity prices.
• BoE surveys also revealed resilience in defiance of dovish pricing, while the rise in EA unemployment merely matched ECB forecasts and was heavily reliant on Italy.
• Next week’s deadline for US tariffs is the main risk event, as not all countries will likely get an extension. Monetary policy decisions come from the RBA, RBNZ, BNM, and BOK.

By Philip Rush

BoE Surveys Sustain Resilience

• The Decision Maker Panel and Credit Conditions Surveys remained resilient. Price and wage inflation are stuck at excessive levels, and US trade policy makes little difference.
• Default rates are falling while the availability and demand for credit are rising to reveal a loosening of monetary conditions. There is no evidence of policy being too tight.
• Inflation and labour market data matched BoE forecasts from May, when most members were biased to slow easing. Resilient surveys should discourage it from cutting again.

By Philip Rush

ECB Still Squeezed By Unemployment

• EA unemployment’s rise to 6.3% matched the ECB forecast underlying recent hawkish guidance and narrowly relied on Italy, which offset a broad tightening elsewhere.
• Unemployment is still broadly lower than a year ago and pre-pandemic. That will not help a disinflationary move along the Phillips Curve, let alone shift it lower.
• Without a disinflationary surprise, the ECB should not be shocked into a rate cut as it describes the prevailing setting as well-positioned. We still see no more ECB cuts.

By Philip Rush