Global economies performing as expected; relative performance index at 2

Global economic data are coming in very close to the zero line, at plus 2 on the Relative Performance Index. This compares with a score of 3 in the prior week to indicate that international forecasters are currently enjoying a high level of accuracy.

Overall economic activity in the Eurozone continues to slightly lag forecasts but, importantly ahead of Thursday’s ECB meeting, only due to the surprising weakness of prices. While the zone’s Relative Performance Index stands at minus 6, the RPI less prices (RPI-P) extended its move back above zero to close the week at 12 to indicate slight outperformance in real activity. Expectations for interest rate cuts in 2024 are becoming increasingly aggressive, which will not sit well with the ECB.

In the UK, the recent run of surprisingly firm data extended across the week and at 41 and 45 respectively, the RPI and RPI-P ended the period at their highest levels since mid-August. Although Bank Rate is widely seen on hold this week, such readings will encourage the BoE’s hawks to call for any rate cuts to be deferred until well into 2024.

In Switzerland, both the RPI (14) and RPI-P (35) moved further into positive surprise territory. However, growth signals remain generally soft and with inflation having apparently stabilised below 2 percent and the Swiss franc very strong, no change in SNB policy on Thursday is fully discounted.

China’s overall index is within the consensus range at 7 but jumps to 20 when the latest CPI and PPI reports are excluded, both of which came in below the consensus. The strength of the RPI-P may perhaps hint at better-than-expected performances for Friday’s industrial production and retail sales reports.

In Japan, a downward revision to third quarter GDP combined with early signs of unexpectedly soft Tokyo inflation trimmed the RPI to minus 16. Even so, the RPI-P stands at 7 to indicate that overall real economic activity is still running a little hotter than expected. Consequently, the BoJ still looks unlikely to shift policy near-term and a move this month seems very improbable.

In Canada, economic outperformance has been a feature for much of the year. At 28 and 41 respectively, the RPI and RPI-P show forecasters once again missing the mark by some margin; nevertheless, they warn that speculation about BoC rate cuts in early 2024 may be somewhat premature.

The US ended the week just over zero at plus 2 on both the RPI and RPI-P, extending to five weeks a run of as-expected to lower-than-expected results. The Fed’s earlier run of rate hikes this year were based in large part on hotter-than-expected data implying perhaps greater chances for an easing in policy should data continue to run comparatively cool.