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>UK GDP recovered another 2.3% of its relatively deep depression in April as the economy continued to re-open. Output remains 4% below its pre-covid peak while almost as many businesses claim to have permanently closed by the end of May.</li>
<li>We remain pessimistic about the damage done to the economy during the lockdowns, which will only become clear as the recovery slows or falters later in the year. </li>
<li>Rapidly rising Covid infection rates appear to be prolonging UK restrictions, especially for international travel, consistent with the reaction function underlying the weakness concentrated in our H2 forecasts. The UK’s vaccinations aren’t fuelling outperformance.</li>
</ul>


UK GDP recovered another 2.3% of its relatively deep depression in April as the economy continued to re-open. Output remains 4% below its pre-covid peak while almost as many businesses claim to have permanently closed by the end of May.
We remain pessimistic about the damage done to the economy during the lockdowns, which will only become clear as the recovery slows or falters later in the year. 
Rapidly rising Covid infection rates appear to be prolonging UK restrictions, especially for international travel, consistent with the reaction function underlying the weakness concentrated in our H2 forecasts. The UK’s vaccinations aren’t fuelling outperformance.


Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

Time and time again in the past five weeks US Treasuries and the S&amp;P 500 have sold off and the Dollar rallied in the wake of hawkish US surprises only for markets to quickly unwind these moves. Volatility in US financial markets has ultimately remained subdued and directionality has been limited. In the month to 3rd June US Treasury yields rose only very marginally and the S&amp;P 500 was broadly unchanged. Notably the Dollar NEER weakened a further 1%, suggesting that markets’ appetite to short the Dollar was not significantly curtailed by these bouts of inflation-concerns.Moreover, quasi-dormant US financial markets have since come to life (or at least a semblance of life), with the 10-year Treasury yield down 13bp to a 3-month low of 1.49% and the until-recently stagnant S&amp;P 500 up 0.8% to a new record-high of 4,227 on 8th June.The erosion of the Dollar’s long-term real yield and rally in riskier assets have resulted in the “safe-haven” Dollar NEER depreciating a further 0.8% to its weakest level since late-April 2018. The Dollar NEER has now weakened over 2% since 19th April, to a 37-month low, in line with our bearish Dollar outlook. Our take is that markets’ belief that the current spike in year-on-year US inflation above the Federal Reserve’s medium-term target will be permanent has further eroded. As we argued a fortnight ago, markets are rightly in our view not (yet) buying into the notion that the Federal Reserve is “behind the curve” and will have no choice but to announce in the near-term a tightening of US monetary policy.The bottom line is that “wait-and-see” is still seemingly the default setting for most developed central banks, including the Federal Reserve and European Central Bank.Some analysts have argued that the release tomorrow of US CPI-inflation data for May, even if in line with consensus forecasts, could prove to be the straw that finally breaks the markets’ dovish back. Based on precedent we do not think this will the case.

Time and time again in the past five weeks US Treasuries and the S&amp;P 500 have sold off and the Dollar rallied in the wake of hawkish US surprises only for markets to quickly unwind these moves. Volatility in US financial markets has ultimately remained subdued and directionality has been limited. In the month to 3rd June US Treasury yields rose only very marginally and the S&amp;P 500 was broadly unchanged. Notably the Dollar NEER weakened a further 1%, suggesting that markets’ appetite to short the Dollar was not significantly curtailed by these bouts of inflation-concerns.Moreover, quasi-dormant US financial markets have since come to life (or at least a semblance of life), with the 10-year Treasury yield down 13bp to a 3-month low of 1.49% and the until-recently stagnant S&amp;P 500 up 0.8% to a new record-high of 4,227 on 8th June.The erosion of the Dollar’s long-term real yield and rally in riskier assets have resulted in the “safe-haven” Dollar NEER depreciating a further 0.8% to its weakest level since late-April 2018. The Dollar NEER has now weakened over 2% since 19th April, to a 37-month low, in line with our bearish Dollar outlook. Our take is that markets’ belief that the current spike in year-on-year US inflation above the Federal Reserve’s medium-term target will be permanent has further eroded. As we argued a fortnight ago, markets are rightly in our view not (yet) buying into the notion that the Federal Reserve is “behind the curve” and will have no choice but to announce in the near-term a tightening of US monetary policy.The bottom line is that “wait-and-see” is still seemingly the default setting for most developed central banks, including the Federal Reserve and European Central Bank.Some analysts have argued that the release tomorrow of US CPI-inflation data for May, even if in line with consensus forecasts, could prove to be the straw that finally breaks the markets’ dovish back. Based on precedent we do not think this will the case. 

<ul>
<li>UK retail sales surged by 9% in Apr-21 to 3% above the between-lockdown peak as store reopening caused clothing to recover. The overall economy is likely to lag well behind and below it. Although the initial bounce is bullish, a warning siren screamed into May.</li>
<li>Consumers do not see the better economic environment benefitting them, with the forward-looking gap repeating the 2009 experience. That foreshadowed four years of GDP disappointment and declining rate expectations, ending with this sentiment gap.</li>
<li>Once again, the balance sheet damage of economic depression is being ignored. Savings balances are better for some, but the distribution constrains their usefulness and are offset by the likelihood that this will be a relatively jobless recovery thanks to furlough.</li>
</ul>


UK retail sales surged by 9% in Apr-21 to 3% above the between-lockdown peak as store reopening caused clothing to recover. The overall economy is likely to lag well behind and below it. Although the initial bounce is bullish, a warning siren screamed into May.
Consumers do not see the better economic environment benefitting them, with the forward-looking gap repeating the 2009 experience. That foreshadowed four years of GDP disappointment and declining rate expectations, ending with this sentiment gap.
Once again, the balance sheet damage of economic depression is being ignored. Savings balances are better for some, but the distribution constrains their usefulness and are offset by the likelihood that this will be a relatively jobless recovery thanks to furlough.


<ul>
<li>UK GDP exceeded expectations in March as it rebounded by 2.1% m-o-m, limiting the Q1 decline to 1.5% q-o-q. That performance is one of the worst in the world, compounding previous economic pains from the UK’s relatively tight and long lockdown restrictions.</li>
<li>Education drove the rise as school’s re-opened, with health extending its surge amid vaccination spending. The extent of that and the boom in construction output surprised. </li>
<li>Many businesses have remained reluctant to resume trading at the start of May. About 10% remain temporarily closed, similar to December, and about 1% have permanently shut since then. Persistent pains will only be revealed after the mechanical rebound.</li>
</ul>


UK GDP exceeded expectations in March as it rebounded by 2.1% m-o-m, limiting the Q1 decline to 1.5% q-o-q. That performance is one of the worst in the world, compounding previous economic pains from the UK’s relatively tight and long lockdown restrictions.
Education drove the rise as school’s re-opened, with health extending its surge amid vaccination spending. The extent of that and the boom in construction output surprised. 
Many businesses have remained reluctant to resume trading at the start of May. About 10% remain temporarily closed, similar to December, and about 1% have permanently shut since then. Persistent pains will only be revealed after the mechanical rebound.


<ul>
<li>The BoE MPC voted to keep all its policy levels unchanged in May, although Chief Economist Andy Haldane dissented in favour of lowering the gilt purchase target by £50bn. That would effectively mean terminating purchases in Aug-21 instead of Nov-21.</li>
<li>Forecast revisions raise GDP and squash the unemployment rate. Potential GDP matches the demand upgrade to maintain an economic balance in 2yrs when inflation is also seen at target. Tweaked guidance removes the apparent dovish near-term bias.</li>
<li>Gilt purchases have been tapered, as we expected, to stretch them until November. A return of restrictions and failure to recover GDP may yet prompt another extension.</li>
</ul>


The BoE MPC voted to keep all its policy levels unchanged in May, although Chief Economist Andy Haldane dissented in favour of lowering the gilt purchase target by £50bn. That would effectively mean terminating purchases in Aug-21 instead of Nov-21.
Forecast revisions raise GDP and squash the unemployment rate. Potential GDP matches the demand upgrade to maintain an economic balance in 2yrs when inflation is also seen at target. Tweaked guidance removes the apparent dovish near-term bias.
Gilt purchases have been tapered, as we expected, to stretch them until November. A return of restrictions and failure to recover GDP may yet prompt another extension.


United Kingdom

The British Pound Sterling is the official currency of The United Kingdom. 

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UK: Economy Enjoys Its Longer Leash

UK GDP recovered 2.3% of its relatively deep depression in April during re-opening. Output remains 4% below its pre-covid peak. Rapidly rising...

Phil Rush

Have Hawks Finally Lost Altitude?

Recent price action - US yields and USD down - suggests markets increasingly less concerned about US inflation and risk of a hawkish Fed surprise....

Olivier Desbarres

UK: Retail Therapy Before Gloom Repeats?

Consumer's expected outperformance has turned in a 2009 signal repeat. That foreshadowed four years of GDP disappointment and declining rate...

Phil Rush

UK: Less of a Global Laggard in Q1

The UK's Q1 performance is one of the worst in the world, despite beating expectations. Persistent pains will only be revealed after the mechanical...

Phil Rush

BoE: Activist Leaves the Hawkish Roost

Haldane dissented to lower the gilt purchase target by £50bn. Forecast revisions raise GDP and squash the unemployment rate. Guidance removes the...

Phil Rush

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