By Jeremy Hawkins, Econoday Economist
Any lingering hopes for early interest rate cuts took a knock last week as the global Relative Performance Index (RPI) rose to 16, indicating a clear, albeit still limited, upside bias to surprises in the economic data.
In the Eurozone, a limited supply of fresh data left the RPI at minus 1 and, when excluding prices (RPI-P), at minus 7; both are close to zero to indicate that economic activity in general is performing much as forecasters expected. Coming just ahead of the European Central Bank’s policy announcement on Thursday, current levels should boost speculation that key interest rates will be left on hold.
At minus 9, the UK RPI similarly shows no major surprises in the overall economic picture. However, a minus 29 reading on the RPI-P means that unexpectedly weak real economy data are helping to offset upside shocks in inflation. This will probably be reflected in another very close vote at the Bank of England’s policy announcement on November 2nd.
In Japan, both the RPI (36) and RPI-P (51) moved further above zero, prompting fresh speculation about when the Bank of Japan might tighten and helping to lift the yield on the 10-year JGB above 0.8 percent, a 10-year high.
China’s surprisingly strong suite of reports encompassing both output and demand raised this country’s RPI to 16 and the RPI-P to a very solid 50. However, more of the same will likely be needed if the local currency is to stabilize and the government achieve its 5 percent full year growth forecast.
Data in the US continue to exceed expectations, at 30 on the RPI in a reading that could justify, at least for the policy hawks, a rate hike at the Federal Reserve’s November 1st announcement. Canada’s 15 score hints at overperformance but the RPI-P score of 34, which excludes September’s surprisingly soft CPI report, reveals tangible underlying strength that could raise doubts over the Bank of Canada’s expected decision on Wednesday to leave rates unchanged.