Where do we go now?

Research evidence excerpt

Where do we go now?

Barclays | Macro Wrap

Despite the favourable data, credit spreads widened suggesting valuations and AI-related

funding needs are constraining further tightening. Meanwhile, equity investors are grappling

with the sustainability of semis’ outsized earnings growth.

So, where are we with the US politics? Jump into a DeLorean DMC-12 and head back to

2006 – the parallels are hard to ignore.

Against a resilient picture for Q2 activity in Europe, we expect the Governing Council to leave

rates unchanged and expect a final 25bp hike at the September meeting. Considering the

recent repricing, we recommend going long Dec-26 MPC versus Dec-26 ECB.

We nudge up our UK GDP forecasts after slightly stronger-than-expected growth in May.

House prices were broadly stable in June, but there are material regional differences and

market conditions remain soft. We argue that headline inflation in June will ease to 2.6%

before reaccelerating in July. We expect the MPC to stay on hold, but the market is pricing in

further tightening; we recommend fading expectations via longs in MPC/ECB Dec 2026

spread. All eyes are on new PM Andy Burnham’s policy plans over the coming weeks.

In China, exports beat expectations, led by AI-related and green-tech products, while

domestic demand is slowing, retail sales are stalling, and credit growth has undershot

expectations. There is also divergence in housing-market price dynamics with Tier 1 cities

stabilising while lower-tier cities remain under pressure.

In Japan, the draft Basic Policy’s expansionary fiscal stance and pushback against rate hikes

led to a weaker JPY and higher long-term yields. The CPI rebasing looks less likely to impede

BoJ hikes. Meanwhile, discussions around the proposal to cut the consumption tax on food