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 government has decided to follow other European states again into a sweeping nationwide lockdown. Such an aggressive response is more severe than I assumed, so I am downgrading my forecast again to contain an even deeper winter recession.</li>
<li>Additional fiscal support is slim but should postpone the bulk of the unemployment rise again. Deficits are also raised through lost revenue. Monetary policy is likely to continue absorbing the issuance and be ready to go into overdrive again if the gilt market breaks.</li>
</ul>


The UK government has decided to follow other European states again into a sweeping nationwide lockdown. Such an aggressive response is more severe than I assumed, so I am downgrading my forecast again to contain an even deeper winter recession.
Additional fiscal support is slim but should postpone the bulk of the unemployment rise again. Deficits are also raised through lost revenue. Monetary policy is likely to continue absorbing the issuance and be ready to go into overdrive again if the gilt market breaks.


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

The Dollar has treaded water in the past three months, in line with our benign view that “forecasts of the Dollar’s demise as the world’s number one reserve currency are at best extremely premature, at worst unfounded”.Our fundamental perspective is that a structural shift out of Dollars remains unlikely near-term, regardless of the outcome of the Presidential and Senate elections on 3rd November. One reason is that other major reserve currencies such as the Euro, Sterling and Canadian Dollar – which account for a large share of the Dollar Nominal Effective Exchange Rate (NEER) – face a number of headwinds unlikely to dissipate materially any time soon.Moreover, in the past week the Chinese Renminbi NEER has been broadly unchanged, in line with our forecast that “the People’s Bank of China” is more likely in a first instance to […] ultimately arrest the currency’s climb”.   We acknowledge, however, that the outlook for the Dollar and equities in the days (and potentially weeks) following the US elections is shrouded in multiple levels of uncertainty, which has translated into lower not higher realized volatility. Since February the Dollar’s underlying performance has largely reflected its “safe-haven” status, in our view, with the Dollar NEER inversely correlated with the S&amp;P 500. However, this inverse correlation briefly broke down in June, September and mid-October.Our view is that an over-whelming victory for either candidate on 3rd November is more likely to buoy global risk appetite and thus weigh on the Dollar. Conversely, if the election result remains open-ended for a few days (or longer), uncertainty could weigh on market sentiment and perversely see the Dollar appreciate and market volatility tick up.The Dollar NEER has on average in the past decade been strongest in the month of November (+1.1%), but this is partly skewed by the Dollar’s 2.6% gain in November 2016. Moreover, monthly seasonality has, somewhat unsurprisingly, broken down this year and historical patterns are of little help in ascertaining how the Dollar may trade next month.

The Dollar has treaded water in the past three months, in line with our benign view that “forecasts of the Dollar’s demise as the world’s number one reserve currency are at best extremely premature, at worst unfounded”.Our fundamental perspective is that a structural shift out of Dollars remains unlikely near-term, regardless of the outcome of the Presidential and Senate elections on 3rd November. One reason is that other major reserve currencies such as the Euro, Sterling and Canadian Dollar – which account for a large share of the Dollar Nominal Effective Exchange Rate (NEER) – face a number of headwinds unlikely to dissipate materially any time soon.Moreover, in the past week the Chinese Renminbi NEER has been broadly unchanged, in line with our forecast that “the People’s Bank of China” is more likely in a first instance to […] ultimately arrest the currency’s climb”.   We acknowledge, however, that the outlook for the Dollar and equities in the days (and potentially weeks) following the US elections is shrouded in multiple levels of uncertainty, which has translated into lower not higher realized volatility. Since February the Dollar’s underlying performance has largely reflected its “safe-haven” status, in our view, with the Dollar NEER inversely correlated with the S&amp;P 500. However, this inverse correlation briefly broke down in June, September and mid-October.Our view is that an over-whelming victory for either candidate on 3rd November is more likely to buoy global risk appetite and thus weigh on the Dollar. Conversely, if the election result remains open-ended for a few days (or longer), uncertainty could weigh on market sentiment and perversely see the Dollar appreciate and market volatility tick up.The Dollar NEER has on average in the past decade been strongest in the month of November (+1.1%), but this is partly skewed by the Dollar’s 2.6% gain in November 2016. Moreover, monthly seasonality has, somewhat unsurprisingly, broken down this year and historical patterns are of little help in ascertaining how the Dollar may trade next month.

<ul>
<li>UK retail sales exceeded expectations as they surged by another 1.5% m-o-m in September. The rotation away from services extended again with goods sales strength broadly consistent with building a healthy home to lockdown inside.</li>
<li>The recovery in GDP has been far weaker and losing momentum. I still expect another slowing in September before tightening restrictions drive it temporarily into reverse over the winter. People movements are demonstrating the danger by already falling.</li>
</ul>


UK retail sales exceeded expectations as they surged by another 1.5% m-o-m in September. The rotation away from services extended again with goods sales strength broadly consistent with building a healthy home to lockdown inside.
The recovery in GDP has been far weaker and losing momentum. I still expect another slowing in September before tightening restrictions drive it temporarily into reverse over the winter. People movements are demonstrating the danger by already falling.


<ul>
<li>Inflation rebounded in September to 0.53% y-o-y on the CPI and 1.13% on the RPI, consistent with the headline Consensus, but disappointing my forecast. Food caused much of the difference, partly because of methodology on the restaurant side.</li>
<li>With more of the August decline now appearing to be VAT-related, my m-o-m forecast for April-20 is revised up, but the annual rate remains broadly lower, especially in the interim. These data are unlikely to affect the MPC’s forthcoming policy easing decision.</li>
</ul>


Inflation rebounded in September to 0.53% y-o-y on the CPI and 1.13% on the RPI, consistent with the headline Consensus, but disappointing my forecast. Food caused much of the difference, partly because of methodology on the restaurant side.
With more of the August decline now appearing to be VAT-related, my m-o-m forecast for April-20 is revised up, but the annual rate remains broadly lower, especially in the interim. These data are unlikely to affect the MPC’s forthcoming policy easing decision.


<ul>
<li>The unemployment rate rose to 4.5% in Aug-20, with the 0.2pp surprise associated with revisions from a methodological change. The underlying rise was slightly smaller than we assumed, but still marked an acceleration consistent with our 4.8% forecast for Q3.</li>
<li>Vacancies are rising but remain consistent with a peak UR between 7% and 8%. Stricter lockdown restrictions than we assume could breach that, though. A normalisation in average wages implies unit cost pressures that offset the disinflationary implications.</li>
</ul>


The unemployment rate rose to 4.5% in Aug-20, with the 0.2pp surprise associated with revisions from a methodological change. The underlying rise was slightly smaller than we assumed, but still marked an acceleration consistent with our 4.8% forecast for Q3.
Vacancies are rising but remain consistent with a peak UR between 7% and 8%. Stricter lockdown restrictions than we assume could breach that, though. A normalisation in average wages implies unit cost pressures that offset the disinflationary implications.


United Kingdom

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

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UK: Locking Down the Economic Ruins

The UK government has followed other European states into a nationwide lockdown. Such an aggressive response is more severe than I assumed, so I am...

Phil Rush

US Dollar – Calm Before the Storm

Sleepy Dollar has done little in the past three months, beating to the inverse tune of US equities. But US presidential and senate elections on 3...

Olivier Desbarres

UK: Retail Surges in Sep Towards a Wall

UK retail sales exceeded expectations as they surged by another 1.5% m-o-m in September. The source of strength might broadly be defined as...

Phil Rush

UK: Inflation Rebound Stunted in Sep-20

UK inflation failed to rise as much as I expected largely because of food prices and methodology. The inflation profile now looks lower, although...

Phil Rush

UK: Unemployment Accelerates in Aug-20

A methodological change drove the 0.2pp surprise. The underlying UR rise was slightly smaller than we assumed, but still marked an acceleration...

Phil Rush

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