Macro Pulse

Stronger than expected US inflation data this week has dampened hopes that the Fed might swiftly reduce interest rates in the coming months. This comes on the heels of a flurry of firmer-than-expected US economic data in recent weeks that had previously undermined the case for an early pivot toward looser monetary policy. Still, as we illustrate in several of our charts this week, evidence is accumulating to suggest that tighter monetary policy is taking a toll on the world economy. This week we home in on:

·         The UK and Japan’s recession phase

·         The weakness of Japan’s domestic demand growth

·         Labour market inactivity in the UK

·         Consensus growth and inflation forecasts for 2024

·         The shifting nature of the growth and inflation consensus

·         US service sector inflation

Last week's surprisingly strong US employment report has diminished investors’ expectations that central banks would quickly shift to more relaxed monetary policies. Nonetheless, equity market sentiment across most major economies has remained resilient, buoyed by positive corporate earnings news. In our charts this week, we examine:

·         Consensus forecasts for central bank policy

·         US capacity pressures and inflation expectations

·         Global supply chain pressures

·         Global business cycle surveys

·         Germany’s factory orders

·         Australia’s retail spending

Incoming data have reinforced a soft landing narrative in financial markets over the past few days. And although there was some push back from the Fed against expectations that it might begin cutting policy rates as soon as March, there was equally little to challenge the idea that a pivot toward looser monetary policy will shortly emerge. In our charts this week we home in on:

·         Data surprises and equity markets

·         Euro area inflation

·         The Indian economy

·         Global semiconductor sales

·         Supply chain bottlenecks

·         US household balance sheets

Lingering tensions in the Middle East are now adversely affecting shipping costs and raising concerns about the durability of global supply chains. Recent commentary and some data points, in the meantime, have also been casting more doubt on the willingness of central banks to swiftly pivot toward looser monetary policy. In our charts this week we focus on:

·         Global shipping costs

·         Euro area banking conditions

·         The UK manufacturing sector

·         Equity markets in Japan and China

·         China’s economy

·         The Bank of Japan

Over the past few days there has been further pushback to the idea that central banks might initiate easing cycles in the immediate months ahead. Added to this the flare up of instability in the Middle East has been another factor amplifying investor anxiety. Andy Cates and Tian Yong Woon discuss these and other issues in their podcast this week. Meanwhile, our charts this week focus on:

·         Maritime trade in the Red Sea

·         Energy prices and geopolitical instability

·         Global shipping costs

·         Supply chain efficiency

·         China’s labour market

·         The post-pandemic economic recovery

The soft-landing consensus that emerged toward the end of last year has come under increased scrutiny in recent days. Specifically, there are now more doubts about the notion that central banks will shift towards a much more accommodative monetary policy in the coming months. In this week's charts, we look more closely at consensus views for 2024. More specifically, we home in on:

·         The still-high influence of data surprises for markets

·         The US growth consensus versus other major economies

·         The inflation consensus for China versus Japan

·         Concerns in the US small company sector

·         Healthier high frequency indicators from China

·         Healthier data for global trade

The growing belief that central banks may start easing cycles within the next few months, coupled with the increasing plausibility of a soft landing for the world economy, has fuelled a rally in financial markets over recent weeks. In our charts this week we investigate that narrative with some perspectives on:

·         The policy rate consensus

·         Equity market performance

·         The US dollar’s gyrations

·         Inflation and commodity prices

·         Market expectations for Fed policy

·         China’s economic outlook

Download the free commentary and charts here: https://haverproducts.com/?sdm_process_download=1&download_id=23112

A growing belief that central banks have not only concluded their tightening cycles but could even initiate easing cycles within the next six months has continued to fuel a rally in and bond and equity markets over the past few days. In our charts this week, however, we steer away from the daily macro and market news cycle and highlight six charts instead that give some colour on some of the key macroeconomic trends that have unfolded in 2023. These trends include:

·         The outperformance of the US economy

·         Disinflation in advanced economies

·         The importance of energy prices

·         Still-tight labour markets

·         Growing stress in China’s property market

·         Global temperature anomalies

There has been little to dislodge the growing conviction in financial markets about soft landing scenarios over the past few days as data calendars have been thin and policymakers have been relatively quiet. Investors have, therefore, taken their cue from the dataflow that’s been released over the past month suggesting that inflationary pressures are cooling and that further interest rate hikes could now be unnecessary. In our charts this week we home in on:

·         US companies’ pricing power

·         Economic uncertainty

·         Global technological adoption

·         Africa’s demographic promise

·         Regional CO2 emissions

Growing conviction that central banks have concluded their tightening cycles has fuelled a rally in stock and bond markets over the past two weeks. And that conviction has been reinforced by some weaker-than-expected inflation data over the past few days. In our charts this week we weigh in on this and on other factors including:

·       Core inflation trends in advanced economies

·       The global growth consensus for 2024

·       The links between growth and interest rate expectations

·       Growing concerns in the US about higher interest rates

·       Japan’s disappointing GDP growth in Q3

·       Equity market fund flows in developed and emerging economies