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Global Monthly - Teflon economy shaking off another shock
- Macro economy
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The global economy remains resilient in the face of persistent shocks. The AI boom, defence spending and the energy transition ‘capex troika’ are likely to continue supporting growth going forward. Still, AI bubble risk, and sovereign debt dynamics remain a worry.
ECB suggests more hikes to come
- Macro economy
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The ECB raised interest rates by 25bp at the June Governing Council meeting as was widely expected. Its communication and forecasts suggested that there will likely be more rate hikes to come.
ECB to hike this week and signal more on the cards
- Macro economy
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The ECB Governing Council meets this week to decide on its monetary policy, where it will also have aid of updated projections on the economy and inflation. We expect the ECB to raise its key policy interest rates by 25bp as well as signalling that further monetary tightening is on the cards going forward.
Global Monthly - The Hormuz clock is ticking
- Macro economy
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The US and Iran seem close to a deal to reopen the Strait of Hormuz. But even with a full reopening, energy prices are likely to stay well above pre-war levels over the coming quarters. In the absence of a deal, the continued rundown of oil inventories poses the risk of nonlinear price spikes. Still, we expect the growth impact to stay contained thanks to the underlying resilience and flexibility of the global economy.
ECB Watch - Rate hike on the cards as risks intensify
- Macro economy
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The ECB’s communications following the April meeting made it clear that a rate hike is on the cards in June. Inflation risks were judged to have intensified and were on the upside as the developments were moving away from the ECB’s baseline. The March baseline itself was predicated on rate hikes, while oil prices have moved significantly higher since then . We expect a 25bp hike at each of the next two meetings taking the deposit rate to 2.5%
Global Monthly - The Hormuz stand-off
- Macro economy
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The Iran conflict has morphed from a hot war to an economic one, with both sides using the Hormuz chokepoint as negotiation leverage. Energy supply disruptions are bigger than ever, but market worries have subsided, with peace efforts given the benefit of the doubt. We make only incremental forecast adjustments this month, keeping our core view that severe energy disruptions persist to end-May. We also update our more positive and negative scenarios for the conflict.
Global Monthly - It takes three to TACO
- Macro economy
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With the Iran conflict ongoing and the chance of a ceasefire uncertain, we update our base case for growth, inflation and interest rates. We assume severe energy disruptions last until the end of May, and this could happen even if the conflict ends relatively soon. The inflation impact of the energy shock continues to outweigh the growth hit, and central bank responses are therefore likely to tilt hawkish. We now expect the ECB to hike rates twice in Q2, and the Fed to delay cuts to Q4. Both central banks are expected to cut rates in 2027.
ECB Watch - ECB has moved to a tightening bias
- Macro economy
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Although the ECB’s communication was not particularly hawkish following the March Governing Council meeting, we still think it has effectively moved towards a tightening bias.
ECB set for hawkish pivot
- Macro economy
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The ECB’s March meeting promises to be the most interesting in a while with the ‘good place’ on interest rates challenged by the energy shock. The cut off date for the projections was most likely just before the war, so the energy shock will only be very modestly included. However, the ECB will also likely present scenarios that better capture recent developments, which will indicate that they may need to act. In addition, we expect the general tone of the communication to be a lot more hawkish. Uncertainty on the conflict is high, but if the current situation persists through to the April meeting, a hike becomes a distinct possibility
Macro scenarios of the Iran conflict
- Macro economy
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The conflict in between the US-Israel and Iran has entered its 11th day. Geopolitical risk, as measured by the GPR index, has spiked to levels last seen around the Iraq invasion in 2003, and has remained highly elevated since. Since our initial publication last week Monday, it has been a rollercoaster ride for both oil and gas markets [1]. Given the ongoing uncertainty around the duration and impact of the conflict, we have put together three scenarios exploring how the macro-economic impact could evolve over the coming months, focused on the US and eurozone, and with the implications for the ECB and Fed’s key policy rates. We will follow up this note with updates on how we see these scenarios impacting bond and FX markets in the coming days.
