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The Week Ahead - 30 June - 4 July 2025
These are the Key Macro Events for the upcoming week.
Japan: The Land of the Rising Yields
We expect drags from US tariffs to keep a lid on Japanese growth. Trade talks with the US are taking quite some time. The Bank of Japan (BoJ) recently lowered its inflation forecasts, but upside risks remain. We expect the BoJ to stay on a cautious, gradual hiking path. In its June meeting, the BoJ announced to slow its pace of tapering, as expected. High public debt and rising rates pose challenges, but there are risk-mitigating factors. Meanwhile, the Japanese government bond curve has steepened due to a higher term premium. We do not have indications for structural US debt outflows by Japanese investors, yet. We expect the yen to appreciate versus the US dollar in 2025-2026.
US Watch - Why tariffs will not unleash the next inflation wave
We evaluate whether the initial tariff-induced inflationary shock could once again transform into a persistent inflation wave. The trade war could cause supply chain disruptions again, although after the de-escalation this is less likely. Export restrictions remain a threat. The US is already facing a negative labour supply shock, but it’s mostly absorbed by weaker demand. The lack of stimulus from the Big beautiful bill is a blessing in disguise, as more demand-inducing spending would be inflationary. While some circumstances are similar to those that led to the 2020-2022 inflation wave, they represent minor ripples, not the perfect storm. We highlight two alternative channels that could lead to inflation picking up again.
The Week Ahead - 23 - 27 June 2025
These are the Key Macro Events for the upcoming week.
FOMC Watch - Forward-looking Fed holds rates anticipating rising inflation
The FOMC held rates in the 4.25-4.5% range, as expected. The press release stated that they judge that "uncertainty about the economic outlook has diminished but remains elevated, " consistent with the de-escalation in the trade war with China a few days after the May FOMC meeting.
Impact of Israel-Iran on inflation and interest rates
Muted reaction so far of energy prices to Israel-Iran escalation - The escalating conflict between Israel and Iran has raised concerns over the last few days about potential disruption to global energy supply. As a result, a risk premium has been priced into oil prices, which has oscillated between 5 and 10 dollars p/b depending on the prospects for escalation versus de-escalation. The relatively muted reaction of prices reflects that the impact on energy supply has been limited so far. At the same time, outside of potential impacts of the conflict, supply is growing more quickly than demand and that is expected to remain the case this year and next.
FOMC Preview – It’s the data, not the sentiment
We expect the Fed to keep rates on hold today. Recent data has surprised in a dovish direction, but projections and the dot plot will shift more hawkish. The ‘hard’ data from the projections likely gives a better signal of the Fed’s rate trajectory than the ‘soft’ data from Powell’s press conference
The Week Ahead - 16 - 20 June 2025
These are the Key Macro Events for the upcoming week.
US - From trade war to capital war
The One Big Beautiful Bill contains many worrying aspects that further increase the debt level, without a strong economic impulse. Beyond the headline tax cuts, it also contains some proposals for various taxes, such as Section 899, that look an awful lot like capital controls. Various members of the Trump administration have spoken out in favor of such controls. Similar to tariffs, capital controls can reduce the trade deficit, and similar to tariffs, they are stagflationary. In contrast to tariffs, capital controls in theory reduce the value of the dollar.
The Week Ahead - 9 - 13 June 2025
These are the Key Macro Events for the upcoming week.