Global economic activity still lagging forecasts

In the main, economic activity continues to fall slightly short of market expectations and was reflected last week in interest rate cuts from both the Bank of Canada and the European Central Bank. The global RPI now stands at minus 5 and the RPI-P at minus 8.

In a mixed week for the U.S. data, an unexpectedly robust employment survey helped to lift the RPI and RPI-P (both minus 6) to within touching distance of zero. Even so, the two measures have been largely in negative surprise territory since the start of May so, while it might be some way off, a Fed ease remains in the pipeline.

In Canada, the BoC’s 25 basis point cut was an expected response to what has been a generally surprisingly soft suite of economic data so far in 2024. May’s labour market report surprised slightly on the upside but at minus 6 and minus 7 respectively, the RPI and RPI-P still closed out the week below zero.

Having widely telegraphed its intentions, the ECB’s interest rate cut also came as no surprise to anyone. Still, the decision was taken after an unexpectedly strong May inflation report, as reflected in an RPI (minus 11) that remains well above the RPI-P (minus 22). Despite an underperforming real economy, this leaves another ease as soon as July looking very unlikely.

In the UK, the RPI (minus 4) and RPI-P (minus 10) remained in negative surprise territory but only just. Economic activity in general is slightly undershooting market expectations but not to the extent that would impact the BoE’s inflation forecast. A June cut in Bank Rate is still odds against.

In Switzerland, both the RPI (4) and RPI-P (10) held above zero to extend the recent short period of outperformance. However, current readings only follow months of unexpected weakness and May’s inflation update was surprisingly soft. Consequently, another SNB ease next week remains a very real possibility.

Ahead of Thursday’s BoJ announcement, the Japanese RPI stands at minus 9 and the RPI-P at minus 18, both gauges showing a limited degree of recent underperformance. The market call is no change in interest rates on Thursday but there is considerable speculation that the bank might taper its massive bond buying programme.

In China, better news on the economy in May lifted both the RPI and RPI-P to exactly zero but this only means that economic activity in general is moving in line with forecasts.