Global data modestly ahead of forecasts, but US substantially ahead

Underpinned by the US, global economic data are coming in slightly ahead of expectations, at 11 for the Relative Performance Index. When excluding prices (RPI-P), the index eases slightly to 5 and very near the breakeven zero line.

The US is far outperforming other economies relative to expectations, at scores of 42 both including and excluding inflation. With inflation in the US still above target and given improving consumer spirits and solid consumer spending (not to mention the strong labor market), the Federal Reserve may see little reason to cut interest rates anytime soon.

With the RPI at minus 4 and the RPI-P at 2, recent Eurozone economic data have largely matched market expectations. Ahead of the first ECB meeting of the year, this further boosts the likelihood of no change in policy on Thursday. Nonetheless, the big picture remains one of sluggish growth and a surprisingly rapid deceleration in inflation. As such, speculation about a cut in key interest rates over the next few months remains solid.

In the UK, an upside surprise in December inflation further reduces the chances of an early cut in Bank Rate. However, an equally unexpected steep fall in retail sales reduced the RPI to 1 and the RPI-P to minus 9, increasing the likelihood of another split MPC vote and underlining the policy dilemma facing the BoE.

In Switzerland, signs of unexpectedly strong deflationary pressure in the manufacturing sector was largely responsible for trimming the RPI to 3 and the RPI-P to 6. Even so, economic activity is largely living up to market forecasts.

Japanese inflation news was in line with forecasts and put the RPI at 4 and the RPI-P at minus 6. This leaves financial markets still pondering when the Bank of Japan is most likely to tighten though a move as early as this week is unlikely.

In China, a raft of economic data was close enough to predictions to leave the RPI at exactly zero and the RPI-P at 10. The latest data may ease some pressure on the authorities for additional stimulus but with deflation still a major issue, the immediate policy bias remains on the downside.

In Canada, the outperformance that marked much of 2023 has recently given way to signs of unexpected weakness. However, most of last week’s data were a little firmer than anticipated and lifted the RPI from the prior week’s minus 19 to minus 5 and the RPI-P from minus 39 to minus 6. That said, with core inflation still falling and overall economic activity subdued, the Bank of Canada is seen easing policy at least once by June.