Lower Oil, Softer Inflation and Shifting Rate Expectations

Falling oil prices are beginning to reshape the outlook for inflation, monetary policy and global interest rates.

Matt Jones and Neil Staines assess the macroeconomic themes likely to drive markets in the week ahead, including continued UK fiscal uncertainty, the increasingly dovish signals from major central banks and the implications of lower energy prices for rate expectations.

In the UK, they consider the political and fiscal backdrop, the apparent £15 billion budget shortfall and the commitment to existing fiscal rules that has so far helped keep gilt markets calm. They also examine Bank of England Governor Andrew Bailey’s comments at Sintra, where falling energy prices, weakening activity, softer labour markets and a widening output gap supported a more dovish policy narrative.

The discussion then turns to the global economy, covering stabilising Chinese PMIs, the Reserve Bank of Australia’s preference to pause and assess, a strong Japanese Tankan survey and a softer Eurozone inflation picture. Key data to watch include Australian inflation, Eurozone investor confidence and retail sales, Japanese cash earnings, Chinese CPI and PPI, and a busy schedule of emerging-market central bank meetings and inflation releases.

In the US, attention remains on payrolls and the emerging policy stance of Federal Reserve Chair Kevin Warsh. His comments on AI-led supply-side expansion, stronger productivity, higher potential growth and declining inflation risks pointed towards a more dovish interpretation, despite his reluctance to provide explicit forward guidance.

Chapters

00:00 Welcome and introduction
00:29 UK politics, fiscal uncertainty and gilts
02:07 Global macroeconomic outlook
03:58 The Federal Reserve, Warsh and payrolls
06:01 Weekend watchlist
07:22 Long and short picks
07:46 Closing remarks and disclosures

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