Riksbank to have to change tack

The Riksbank has learnt from its past tendency to project rate hikes that never arrive. But the single repo rate rise by end-2024 that it currently projects is stretching the limits of plausibility in the other direction.

17 January 2022

The implications of the Russia-Ukraine crisis

The deadlocked end to talks between Russia, the US and NATO and subsequent hawkish noises from Russian officials have caused a risk premium to emerge on Russian asset prices and will keep the prospect of tighter Western sanctions on the table. The downside risks for the ruble and Russian assets are building, as are the upside risks for European natural gas prices. In view of the wider interest, we are also sending this Emerging Europe Economics Update to clients of our Commodities Overview, Energy, FX Markets and Global Markets services.

14 January 2022

Ivey PMI suggests widespread Omicron disruption

The various reports this week of intense labour shortages and the slump in the Ivey PMI in December suggest that the Omicron variant is causing widespread economic disruption.

14 January 2022
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Key financial market calls for 2022

We do not think the returns from many financial assets will be as good in 2022 as they were in 2021. For a start, we envisage a sell-off in government bonds in most places, reflecting the outlook for monetary policy. And, in general, we foresee an underwhelming performance from equities, including in the US and China. We expect this backdrop to be accompanied by a further broad-based rise in the US dollar. In view of the wider interest, this Global Markets Update is also available to clients of our Asset Allocation & FX Markets services.

13 January 2022

Sustained tightening by the Fed to drive Treasury yields higher

Despite its slight drop over the past few days, we still expect the 10-year US Treasury yield to rise further by the end of 2022.

12 January 2022

Revising our forecasts for DM 10-year bond yields

We continue to expect monetary tightening to push up 10-year government bond yields across developed markets (DMs) but we now forecast them to reach a higher level than we had previously anticipated, especially in the US, Germany and the UK.

12 January 2022

Inflation to remain above target in 2022

Euro-zone inflation reached 5.0% in December, which is likely to be the peak. Unless oil and gas prices surge again in 2022, which seems unlikely, energy inflation will plummet – we forecast the contribution of energy to headline inflation to drop from 2.5 percentage points in December 2021 to around zero in December 2022. But we don’t expect to see a downward trend in core inflation. The full impact of high input prices has probably not yet fed through to core goods inflation, which was already at a record high at the end of last year. In the near term, the Omicron variant could lead to a bigger reduction in global supply than demand, adding to inflationary pressures. And if demand rebounds when Omicron cases start to fall, as we expect, it could push up wage growth and services inflation. We forecast core inflation to average a little over 2% this year, which would put more pressure on the ECB to prepare the ground for interest rates to rise in 2023.

We expect yields to support further USD strength before long

Although the recent surge in US government bond yields has made little impact on the US dollar, which has been broadly flat over the past month or so, we still think that widening yield differentials will continue to push the greenback higher against most currencies this year.

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