Global data beating forecasts; RPI at 23 as China and US lead

Economic data proved much better than expected last week, lifting the global economy’s Relative Performance Index (RPI) to 23 for the best score since the outset of 2024. Inflation data aren’t skewing the results which hold at 26 less prices (RPI-P).

Significant upside surprises in China’s data boosted this country’s RPI to 50 and the RPI-P to 60 and paved the way for the PBoC to leave the benchmark 1-year loan prime rate unchanged at 3.45 percent. However, continued outperformance will be needed if policy rates are not to be lowered again over coming months.

Following downside surprises in late February and early March, the latest US data have resumed a clear upside bias lifting both the RPI and RPI-P to 31. First quarter growth is shaping up well, justifying the Federal Reserve’s decision to leave policy on hold and further raising questions over forecasts for aggressive easing in 2024.

Also resuming an upside bias, and for the first time this year, are Canada’s data, at 12 overall and at 31 when excluding what have been cooler-than-expected inflation data. If this marks the beginning of a new trend, talk of a Bank of Canada rate cut would be inevitable.

Signs that the Eurozone economy in March may marginally outperform expectations were only enough to put the region’s RPI at minus 4 and the RPI-P at 5. Overall economic activity is behaving much as expected but that still implies sluggish growth and falling inflation. A June cut in ECB interest rates looks more likely than not.

In the UK, the apparent rebound in growth this quarter continues but, with the RPI slipping to minus 17 and the RPI-P to minus 11, forecasters have started to get a little ahead of themselves. Even so, the improvement in the wider economic picture has eased pressure on the Bank of England for an early cut in Bank Rate.

Last week’s reduction in the Swiss National Bank’s policy rate might not have been the market consensus but the string of the country’s negative RPI and RPI-P readings seen since the middle of last year had made for plenty of risk. The latest values (7 and 5 respectively) show forecasters having now adjusted from their excessive optimism. Even so, the inflation undershoot has been large enough to make another cut in June a real possibility.

In Japan, the first hike in BoJ interest rates in 17 years was already fully discounted. Indeed, the 10 basis point increase was about as small as operationally practical and will have been limited by the clear downside bias in surprises in the economic data since the start of the year. Even now, the RPI (minus 9) and, in particular, the RPI-P (minus 29) still show overall economic activity falling short of expectations.