Weekly Insights

The fog of late cycle

• Beyond mounting evidence of a China slowdown, data are not sending clear signals, with this week's European inflation and US labor market reports both mixed. We think the ECB will halt in July, but now expect the Fed to deliver two more hikes before Q4, with one possibly as early as June.

• While there was no definitive signal about the FOMC's June decision, we lean toward a skip. We push back our recession call.

• Euro area inflation and growth are on downward trends, proving that monetary tightening is transmitting from the financial sector to the real economy.

• In the UK, credit growth slowed in April, suggesting that Bank Rate hikes are being transmitted to the financial sector.

• We still expect the BoJ to revise/scrap YCC in July as underlying inflation strengthens and the JPY weakens.

• In China, manufacturing PMI could provide bright spots, but we expect a weaker property market to weigh on the upcoming data release.

• In Emerging Asia, regional PMIs suggest caution. The Bank of Thailand likely hiked for the last time, and, we expect the Reserve Bank of India to remain on hold.

• The return of former Turkish Minfin Simsek strengthens our non-consensus forecast of major rates and FX adjustments in H2 23.

• Labor markets in Latin America remain an important driver of private consumption despite tight monetary conditions, but we expect them to cool.