Global data extend improvement, roughly meeting expectations

At minus 7, the Relative Performance Index (RPI) extended an improving trend and is now signaling that global economic data on net are nearly meeting economic forecasts. At minus 2, the index less prices (RPI-P) is almost at breakeven zero.

In the UK, a mix of upside and downside surprises cancelled each other out to leave the RPI-P at exactly zero. At minus 7, the RPI shows overall economic activity falling slightly short of expectations but not to the extent that would prompt a majority of BoE MPC members to vote for a cut in Bank Rate on Thursday.

In the Eurozone, unexpectedly soft core inflation in April underpinned market expectations for an ECB interest rate cut in June despite a modest upside surprise on first-quarter GDP growth. At minus 3 and 8 respectively, both the RPI and RPI-P show recent data on balance coming in much as anticipated.

In Switzerland, economic activity looks to be moving ahead but at only a modest pace and rather more slowly than market forecasts. At minus 6 and minus 23 respectively, the RPI and RPI-P remain sub-zero. However, unexpectedly firm inflation last month has slightly dented speculation about another SNB rate cut later this quarter.

In Japan, economic news was typically on the soft side of market expectations, lowering the RPI to minus 14 and the RPI-P to 11. Neither reading offers any help to the beleaguered yen which against the dollar would probably have stabilised above 160 but for suspected aggressive BoJ intervention.

In China, a stronger-than-expected manufacturing sector lifted both the RPI and RPI-P to 2, indicating that overall economic activity is now performing in line with forecasts. Having outperformed for most of March and early April, the latest readings should relieve some pressure on the authorities to ease policy further.

In Canada, the recent run of sub-zero RPI readings was borne out in disappointingly sluggish February GDP. At minus 52, the RPI is now at its lowest level since early 2022 while, at minus 53, the RPI-P is even weaker. High wage growth remains a risk but on current trends, a cut in Bank of Canada interest rates in June is very possible.

April’s lower-than-expected employment report left the US RPI at minus 16, both overall and when excluding inflation. Though these readings are among the lowest of the year, prior outperformance by the US economy and still high inflation are very likely to limit Federal Reserve rate-cut talk.