Rising 2026 concerns

• • • Leading indicators suggest a loss of economic momentum at a time when labour markets look increasingly fragile (see charts).
    • A composite of six US monthly indicators used by the NBER to date business cycle peaks / troughs has moved sideways since March (see charts).
    • US Q2 financial accounts numbers suggest that post-Liberation Day strength in equities has been driven by foreign buying (see charts).
    • The Chinese economy continued to lose momentum in August but money trends are moderately reassuring (see charts).
    • Japanese money trends remain weak but are improving at the margin, partly reflecting an improving balance of payments (see charts).
    • The ECB staff forecast for core inflation in 2027 was revised down to 1.8%, suggesting an open door for further easing if activity disappoints (see charts).
    • UK housing construction indicators are ominously weak (see charts).

Global business surveys are expected to inflect weaker by year-end, based on a monetary slowdown since the spring:

The OECD’s German leading indicator has lost momentum, consistent with an imminent survey peak:

The downward revision to US payrolls growth in the year to March will be the largest since 2009 if preliminary numbers are confirmed:

Jobs numbers from the Quarterly Census of Employment and Wages – on which the payrolls revision is based – suggest that employment was flat between September 2024 and March 2025:

A composite of six US monthly indicators used by the NBER to date business cycle peaks / troughs has moved sideways since March:

Foreign buying of US equities reached a US dollar record in Q2, according to the Fed’s financial accounts:

US six-month core ex. shelter CPI momentum remained close to 2% annualised:

Upward pressure on goods prices from tariffs has so far been balanced by slower services inflation:

The Chinese economy continued to lose momentum in August, with investment alarmingly weak (anti-involution) and housing activity still softening:

Headline annual CPI deflation reflects food price weakness, with core continuing a modest recovery and PPI deflation easing slightly:

Six-month narrow money momentum recovered further, a moderately reassuring signal:

Recent yield curve steepening is consistent with money growth stabilisation / improvement:

Japanese money trends remain weak but are improving at the margin, reflecting a recovery in bank lending and a smaller drag from external flows:

QT remains a large negative.

The turnaround in external flows tallies with balance of payments data showing the basic balance moving into surplus:

The improvement in the basic balance has been driven by the portfolio investment account moving from a deficit to balance, i.e. Japan is no longer exporting portfolio capital.

The ECB staff forecast for core inflation in 2027 was revised down from 1.9% to 1.8%, suggesting an open door for further easing if activity disappoints:

UK Q2 residential planning approvals were the lowest since 2012, consistent with previously reported weakness in construction orders and suggesting a renewed fall in output: