Global Economics Weekly_ Let the deals begin

Key Points: 1. Global Economic Outlook * Trade Tensions: Trump administration's tariff threats against China, Mexico, and Canada, likely aimed at strengthening negotiating hand. Tariffs on Mexico and Canada unlikely to be implemented, but China could face additional tariffs. * Inflation Concerns: Inflation remains a concern, with the US CPI and PCE inflation expected to rise in the coming months. Euro area inflation expected to remain above target, with core inflation steady. * Central Bank Policy: US Fed expected to continue gradual rate cuts, with December decision hinges on November payrolls. Euro area ECB expected to cut rates in December, but policy path remains uncertain. * Global Growth: Global growth expected to slow in the coming quarters, with risks of further slowdowns due to trade tensions, inflation, and geopolitical uncertainties. 2. US Outlook * Tariff Threats: Trump administration's tariff threats against China, Mexico, and Canada, likely aimed at strengthening negotiating hand. Tariffs on Mexico and Canada unlikely to be implemented, but China could face additional tariffs. * Inflation Concerns: Core PCE price inflation firm, with October's core increase of 0.27% m/m (2.8% y/y) similar to September's elevated pace. * Fed Policy: FOMC minutes indicate intent to ease gradually as it awaits signals from data and policy. December decision hinges on magnitude of payback effects in next week's jobs report. * GDP Growth: Activity poised for some deceleration in the current quarter on the heels of a strong Q3 gain, with consumer spending and equipment investment losing some momentum. 3. Euro Area Outlook * Stagnation: Economic momentum in the euro area remains weak, with signs of softening in the labor market. Inflation remains above target, with core inflation steady. * France Political Risk: High risk of the current minority government collapsing due to budget disagreements, potentially leading to political instability and higher deficit. * ECB Policy: ECB members have shown diverging views on the next policy steps, with some advocating for gradual approach and others suggesting retaining flexibility regarding the size of the December cut. 4. UK Outlook * Resilient Money and Credit Growth: Money and credit data were resilient going into the October budget, with whole economy M4ex IOFCs (broad money) growing 4.0% 3m/3m-annualised in October. * Immigration: Updated data show immigration was higher than previously thought, but is now falling. * BoE Policy: BoE began the conversation on its response to the Bernanke Review, while the fiscal policy focus centres on the choreography of next steps. 5. Japan Outlook * Wage Hike Expectations: Expect a large wage hike again in FY25 and a base pay increase consistent with the new equilibrium sought by the BoJ, reflecting labor shortage perceptions, earnings, and inflation expectations. * CPI Data: CPI data remain firm and the services PPI suggests pass-through of labor costs is in the pipeline. * BoJ Policy: BoJ expected to continue its easing cycle, with further rate cuts expected in the coming months. 6. China Outlook * Tariff Threats: Trump's threat to impose additional 10% tariffs is likely a negotiating tactic, but could mark the start of a stream of tariffs ahead. * Policy Response: Expected China to respond with more fiscal support, though there could be a lag before the next policy announcements. * Economic Recovery: Early signs of recovery in October following stepped-up counter-cyclical policy support, but the recovery remains timid and fragile. 7. Emerging Asia Outlook * Central Bank Easing: Bank of Korea (BoK) delivered an out-of-consensus – but in line with our forecast – 25bp cut. Now expect another BoK cut in Feb 2025. See the Monetary Authority of Singapore (MAS) easing in Jan 25, and Reserve Bank of India (RBI) on hold in Dec 24. * Inflation Concerns: Inflation remains a concern, with core inflation expected to remain above target in the coming months. 8. Emerging Europe, Middle East and Africa Outlook * Geopolitical Risks: Focus has shifted to Gaza, Iran, and Israeli domestic politics, with ongoing tensions and risks of renewed conflict. * Central Bank Policy: BoI stayed on hold, while the NBK hiked by 100bp, intervening in the market amid significant FX pressure. 9. Latin America Outlook * Trade Tensions: Explore the possible implications for LatAm economies via four potential channels: trade, global financial conditions, remittances, and diplomacy. * Mexico: Believe the Trump administration will not impose specific tariffs on Mexico, as supply chains are highly integrated and Sheinbaum's incentives are aligned to Trump's. * Argentina: Milei's special relationship with Trump could facilitate negotiations with the IMF around a new program with net financing. * Venezuela: Trump's first key appointments signal potential for a harder, rather than a softer, stance towards the Maduro regime.