Global data outperforming; Relative Performance Index at 15

Global economic data are on an upswing reflected in the Relative Performance Index (RPI) which is at plus 15. Signs last week that the Eurozone economy might have been stronger than expected in December boosted the region’s RPI to 23 and the index less prices (RPI-P) to a solid 50. However, while such readings may help to reduce pressure for an early cut in key ECB interest rates, still declining core inflation ensures that the door to monetary easing later in the year remains open.

In line with the Eurozone, UK economic activity looks likely to have surprised on the upside at year-end. Fourth quarter GDP growth will still be weak but with both the RPI and RPI-P climbing to 19, the BoE finds itself with a little more time to contemplate the appropriate pace of any interest rate cuts. To this end, financial markets have tempered their previous aggressive easing expectations.

In Switzerland, the outperformance of the real economy that characterized the closing months of 2023 has carried over into the New Year. Even so, there remains a sizeable gap between the RPI-P (30) and the RPI (0) showing that recent inflation surprises are still on the downside. This suggests that while the next move in the SNB’s policy rate will almost certainly be down, it may not be until the second quarter.

In China, an unexpectedly marked pick-up in economic momentum last month was enough to boost the RPI and RPI-P to minus 7 and zero respectively. The broad picture still looks quite sluggish but following a string of disappointingly soft data, these latest readings will lift hopes that 2024 will deliver a much-improved performance.

A strong December employment report helped lift the US RPI to 30 both overall and less prices. Extended strength at this pace could forestall the Fed’s anticipated rate cut. Canada’s employment report was less favorable and left the RPI within the consensus range at minus 5, but when excluding what have been higher-than-expected inflation readings, the score drops to minus 23. Weak growth combined with high inflation would leave the Bank of Canada out on a limb.