North America

US

Commercial Property Lending (Dec.)

Commercial real estate debt ended 2021 with its largest monthly increase since the onset of the pandemic. Against a backdrop of strong investment activity, we expect commercial property lending to have a strong start to 2022.

17 January 2022

We do not expect the recent dollar weakness to last

Despite several events in the US this week which would usually point to a stronger dollar – the highest US inflation print since the early 1980s, hawkish comments from both Chair Powell and Vice Chair Brainard, and a sharp rise in short-dated government bond yields relative to those in most other countries – the greenback fell this week. We think there are several possible explanations, including rising commodity prices, rotation out of the US tech sector, stretched long dollar positioning, and the fact that US money markets have already priced in a fairly aggressive rate path.

14 January 2022

Fed becoming more hawkish by the day

The continued surge in Omicron infections suggests that the disappointing December activity data will be followed by further weakness in January, but there are no signs that it will delay the Fed’s accelerating plans to tighten policy.

14 January 2022
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Industrial Production (Dec.)

The 0.3% m/m decline in manufacturing output is probably a sign that Omicron-related employee absenteeism was already weighing on output by the end of last year. We expect an even bigger hit in January but, assuming that the surge in infections peaks soon, any losses in output should be fully reversed in February and March.

Retail Sales (Dec.)

The 1.9% plunge in retail sales in December in part reflects what appears to be a problem with seasonal adjustment process around the holidays. The initial Omicron wave appears to have had only a modest impact. Nevertheless, it means fourth-quarter real consumption growth was a more muted 3.5% annualised, rather than the near-5% we were expecting.

Estimating the carbon transition risk to property values

Real estate potentially has a significant role to play in helping achieve ambitious climate targets. We have estimated the size of the risks in the transition to net zero for the commercial property markets that we cover. This risk varies widely across markets and sectors, but suggests that the costs, at less than 8% of current capital values, are significant but not insurmountable. In view of the wider interest, we are also sending this European Commercial Property Update to clients of our UK and US Commercial Property services.

The outlook for high-beta DM currencies in 2022

We think that rate differentials and commodity prices will be the key factors driving the relative performance of six “high-beta” DM currencies in 2022, continuing last year’s trend. We expect all these currencies to lose ground against the US dollar this year, although we think that a more hawkish Riksbank and Bank of England will mean that SEK and GBP hold up best, while our forecast of falling energy prices, especially that of European natural gas, suggests to us that NOK will do worst. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

US Weekly Petroleum Status Report

Commercial crude stocks slumped last week, reflecting a partial recovery in demand. However, we think demand will remain under pressure as COVID-19 cases rise in the US and as economic growth slows.

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