Chief Economist, Heteronomics

Phil Rush

Chief Economist

Heteronomics

Heteronomics represents a different kind of economics. We believe analysis should delve into the details of what is really going on, rather than using overly simplistic assumptions to quick-sell stories. Independence from myopic institutional pressures allows us to focus on the realities underlying your asset allocation decisions, without the conflicts of the old market structures. Heteronomics targets the themes driving UK asset prices, offering the benefits of depth, independence and ultimately price.

UK-centric macro research

Macroeconomics

<ul>
<li>The UK recovery is disappointing in GDP terms again as output only rose by 0.4% m-o-m after a downwardly revised -0.1%. Our GDP growth forecast is marginally re-profiled but little changed overall, with H2 still tracking on the soft side of the BoE’s view.</li>
<li>Downside risks have increased with the recent energy price shock. Output does not appear to have suffered into October, but shutdowns would drive a nonlinear GDP response. Manufacturing could easily wipe out growth elsewhere during a cold winter.</li>
</ul>


The UK recovery is disappointing in GDP terms again as output only rose by 0.4% m-o-m after a downwardly revised -0.1%. Our GDP growth forecast is marginally re-profiled but little changed overall, with H2 still tracking on the soft side of the BoE’s view.
Downside risks have increased with the recent energy price shock. Output does not appear to have suffered into October, but shutdowns would drive a nonlinear GDP response. Manufacturing could easily wipe out growth elsewhere during a cold winter.


<ul>
<li>Green light: unemployment’s trend decline extended to 4.5% in Aug-21 on employment growth. Vacancies are at their highs, while redundancies are at their lows.</li>
<li>Red light: 5% of pre-covid payroll remains furloughed while the public sector is driving the rise in jobs. Industrial and consumer-facing businesses are struggling.</li>
<li>Elimination: frothy wage growth is evaporating with base effects and is on track to end the year near 3.2%. Headwinds should stop hawkish statements from turning to action.</li>
</ul>


Green light: unemployment’s trend decline extended to 4.5% in Aug-21 on employment growth. Vacancies are at their highs, while redundancies are at their lows.
Red light: 5% of pre-covid payroll remains furloughed while the public sector is driving the rise in jobs. Industrial and consumer-facing businesses are struggling.
Elimination: frothy wage growth is evaporating with base effects and is on track to end the year near 3.2%. Headwinds should stop hawkish statements from turning to action.


Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Technical Analysis

This note takes a thorough look, through a technical lens, of major JPY crosses as nearly all show bullish breakouts across the board.When seen in conjunction with rising yields, higher commodity prices, and stable stocks, we get a fuller picture of the reflationary trends that have re-emerged across markets except in Japan where deflationary concerns (even in the face of rising wholesale prices) are never far away. This keeps the JPY the favoured funding currency, as usual.Keep in mind that US yields are likely to continue higher still – the target for US 5-year yield is 1.80% which will probably take a few months to achieve. Such a development would most likely put US 10-year yield well above 2.00%.The only trend, at this juncture, that is beginning to look mature is the rally in Brent Crude, which has effectively met the $85 target area that has been in place for over a month. That does not mean we will reverse but instead could slow down or consolidate ahead of big levels just below $90.

This note takes a thorough look, through a technical lens, of major JPY crosses as nearly all show bullish breakouts across the board.When seen in conjunction with rising yields, higher commodity prices, and stable stocks, we get a fuller picture of the reflationary trends that have re-emerged across markets except in Japan where deflationary concerns (even in the face of rising wholesale prices) are never far away. This keeps the JPY the favoured funding currency, as usual.Keep in mind that US yields are likely to continue higher still – the target for US 5-year yield is 1.80% which will probably take a few months to achieve. Such a development would most likely put US 10-year yield well above 2.00%.The only trend, at this juncture, that is beginning to look mature is the rally in Brent Crude, which has effectively met the $85 target area that has been in place for over a month. That does not mean we will reverse but instead could slow down or consolidate ahead of big levels just below $90.

<ul>
<li>Capacity constraints, especially in energy markets, are squeezing inflation to higher and more persistent excesses. Despite disappointing demand data, the MPC sounds hawkish, encouraging market pricing for multiple rate hikes in 2022.</li>
<li>We still expect the first hike to postpone to Feb-23, but the risks skew earlier. Resilient labour market data would imply a bullish scenario was materialising, with a May-22 hike likely instead. De-anchored inflation expectations would drive more.</li>
<li>Markets should price a possibility of these hawkish scenarios but balance it with dovish ones related to a faltering recovery or even a return to recessionary lockdowns. Current guidance probably won’t lead to a policy response, in our view.</li>
</ul>


Capacity constraints, especially in energy markets, are squeezing inflation to higher and more persistent excesses. Despite disappointing demand data, the MPC sounds hawkish, encouraging market pricing for multiple rate hikes in 2022.
We still expect the first hike to postpone to Feb-23, but the risks skew earlier. Resilient labour market data would imply a bullish scenario was materialising, with a May-22 hike likely instead. De-anchored inflation expectations would drive more.
Markets should price a possibility of these hawkish scenarios but balance it with dovish ones related to a faltering recovery or even a return to recessionary lockdowns. Current guidance probably won’t lead to a policy response, in our view.


<ul>
<li>In September, the BoE MPC voted for an unchanged policy, although Dave Ramsden joined Michael Saunders in dissenting while the two new members supported the status quo. Some non-dissenters may be no less hawkish and merely favour using rates first.</li>
<li>Developments are viewed through a hawkish lens as GDP downgrades are seen as supply temporarily constraining strong demand while upside inflation news risks second-round effects. The formal policy guidance was considered no longer useful and dropped.</li>
<li>We still believe most MPC members would consider a mid-22 rate hike appropriate, but we expect disappointing demand data to delay that into 2023. However, with a less bullish GDP forecast and ongoing labour market resilience, our risks skew earlier.</li>
</ul>


In September, the BoE MPC voted for an unchanged policy, although Dave Ramsden joined Michael Saunders in dissenting while the two new members supported the status quo. Some non-dissenters may be no less hawkish and merely favour using rates first.
Developments are viewed through a hawkish lens as GDP downgrades are seen as supply temporarily constraining strong demand while upside inflation news risks second-round effects. The formal policy guidance was considered no longer useful and dropped.
We still believe most MPC members would consider a mid-22 rate hike appropriate, but we expect disappointing demand data to delay that into 2023. However, with a less bullish GDP forecast and ongoing labour market resilience, our risks skew earlier.


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UK: Output Limps Toward Energy Shock

The UK recovery is disappointing in GDP terms again. Downside risks have risen with the recent energy price shock. Output has not suffered into...

Phil Rush

UK: Green Light, Red Light, Elimination

Green light: 4.5% UR in Aug-21 on employment growth. Red light: 5% remain furloughed while the public sector is driving the rise in jobs. October...

Phil Rush

JPY Crosses Continue to Trend

JPY weakness continues to come through as reflationary trends re-emerge while Japanese yields remain extremely low thus making the Yen the chosen...

Shyam Devani

BoE: Signposts Splitting the Policy Path

Markets should balance pricing of bullish and inflation expectations breaking scenarios with dovish ones related to a faltering recovery or even a...

Phil Rush

BoE: Drops Guidance like Its Hot

Dave Ramsden joined the dissent against QE. We believe most MPC members would consider a mid-22 rate hike appropriate, but we expect disappointing...

Phil Rush

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