Thailand – supportive fiscal policy Most countries in Asia are planning to tighten fiscal policy as they aim to put government finances on a more secure footing following a sharp rise in debt levels during the pandemic. One exception to this is …
21st June 2024
With inflation back to target the stage is set for a decline in interest rates. Indeed, we think that the 10-year gilt yield will have dropped to 3% by end-26. But we don’t think that will lead to much in the way of property yield compression. Rather, …
Space for interest rate cuts narrows across CEE The Hungarian central bank’s decision to opt for a smaller 25bp interest rate cut at its meeting this week fits into a broader theme of policymakers in several parts of the EM world moving towards a slower …
This page has been updated with additional analysis since first publication. Sticky price pressures may mean rate cuts are slower and smaller June’s composite PMI suggests the economic recovery lost a bit of momentum towards the end of the second quarter. …
Latin American assets have generally underperformed those elsewhere of late, in part driven by rising risk premia on the region’s assets. We think these risk premia may rise further over the coming year or so, given our downbeat view on economic growth in …
Bond index inclusion a positive for government… The Indian government’s long-awaited ambition to have its local currency bonds included in global indices will finally come to fruition next Friday when JPMorgan Chase adds the country to its GBI-EM Global …
Will this snap election mark the end of the France's political turmoil? And will the election results convince the bond vigilantes to stand down? Our senior Europe and Markets economists held this assessment of the French legislative election results and …
This page has been updated with additional analysis since first publication. Back to stagflation? The sharp drop in the euro-zone Composite PMI in June suggests a solid recovery in the euro-zone economy is not a done deal, with activity having apparently …
Rebound suggests lower inflation is beginning to support consumption The larger-than-expected increase in retail sales in May more than reversed the rain-driven weakness in April. And with inflation falling back to target, Bank Rate likely to be reduced …
This page has been updated with additional analysis since first publication. Better news doesn’t mask fiscal challenge awaiting next government May’s public finances figures delivered some better news on the fiscal position after the recent run of …
Inflation slowdown creates dilemma for BoJ The minutes of the Bank of Japan’s April meeting released this week confirmed that many Board members were concerned about a renewed strengthening of price pressures caused by the weak exchange rate. Those …
Supply constraints are easing Some commentators have been arguing that it’s not weak demand but a shortage of supply that’s keeping GDP growth at 1% y/y. After all, the fact that job vacancies are still very high and employment growth remains very strong …
This page has been updated with additional analysis since first publication. Underlying inflation will fall below 2% in second half The jump in headline inflation in May mostly reflected electricity price hikes that have further to run. By contrast, …
The G7 loan to Ukraine announced last week and the narrowing window to approve a new debt relief package once the payment suspension with private creditors ends in August has shone the spotlight on Ukraine’s large external financing needs. This Update …
20th June 2024
Having cut the policy rate by 25bp at its last meeting, we think the Riksbank will stick with its guidance that it will keep rates on hold next week. But with inflation likely to fall below 2% in the coming months, policymakers will probably cut the …
Despite the many twists and turns in bond markets this month amid mixed signals from central banks, most sovereign bonds in developed markets (DM) have rallied on net. We expect this to continue, with yields falling further in the coming months. The three …
The office sector faces another two years of value falls, led down by Seattle and San Francisco, where cumulative declines will be around 25%-30%. But our latest forecasts highlight the brighter spots in the South. Thanks to a smaller impact from remote …
We see three scenarios for French fiscal policy in the coming months. Even in the best case the spread of French over German bond yields remains higher than before Macron called an early election. In the worst case there is a fully-fledged bond market and …
Overview – The economies of Latin America started the year on the front foot, but the strong growth rates recorded in early 2024 are unlikely to be sustained and growth in many parts of the region is likely to be soft in the coming quarters. This is …
The outcomes of the EM central bank meetings over the past 48 hours or so underscore the point that, while the EM monetary easing cycle is likely to continue over the coming quarters, it will no longer be led by Central Europe and Latin America. Central …
The proposal to save governments money by ending interest payments on commercial banks’ reserves is a lot more complicated than some of its advocates suggest. The extreme version could either cause central banks to lose control of monetary policy or …
The Bank of England predictably left interest rates unchanged at 5.25% today but continued to give the impression that the pieces of the puzzle are almost in place for it to cut rates. This lends some support to our view that the Bank will first cut rates …
Housing starts fall to lowest level since June 2020 The drop in housing starts in May is consistent with the recent slowdown in permit issuance, pointing to construction continuing to falter this year. The 5.5% m/m decline in housing starts was driven by …
There is a growing chance of a La Niña weather pattern taking hold in the second half of this year. While the economic effects would depend on its severity and length, La Niña events tend to coincide with higher food inflation across Latin America, which …
Overview – We expect economic growth in most countries in Asia to slow in the second half of 2024, as tighter fiscal policy, high interest rates and weaker global growth all weigh on demand. Inflation is back to target in most countries and likely to …
Overview – The euro-zone has come out of a long period of stagnation and will expand at a moderate pace over the coming two years. The recovery will be faster in some southern economies, such as Spain, than in core economies, notably Germany, while the …
BoE leaves the door open to an August rate cut The Bank of England predictably left interest rates unchanged at 5.25% today but continued to give the impression that the pieces of the puzzle are almost in place for it to cut rates. As a result, we still …
Lebanon on verge of being drawn into the war Skirmishes between Hezbollah and Israeli forces have intensified, culminating in Israel’s approval of an “offensive” into Lebanon this week. Not only does this threaten to exacerbate Lebanon’s prolonged …
After a strong start to the year, aggregate EM GDP growth will slow over the coming quarters. Within this there will be regional variation, with Emerging Asia the outperformer and Latin America the laggard. While we expect the EM monetary easing cycle to …
Overview – Prime Minister Modi begins his third term with a weakened mandate, but an economy that is primed to grow by 6.5-7% per year between 2024 and 2026. That would put India on course to become the world’s third largest economy within the next couple …
Capital values are close to bottoming out in most sectors as yields have stabilised. However, with no yield compression and moderating rental growth the recovery will be weak by past standards, not helped by a struggling office sector. But residential …
The SNB’s decision to cut the policy rate from 1.5% to 1.25% was probably more influenced by the appreciation of the franc over the last two months than any perceived easing in domestic inflation pressures. In our view, the SNB is unlikely to cut rates …
Investor concerns about the upcoming snap legislative elections have pushed up French government bond yields and we think they will rise further over the rest of the year. This has worsened the outlook for property valuations and in turn we now expect …
The continued divergence between export values and export volumes of the “New Three” underlines the downward pressure on prices from the rapid expansion in manufacturing capacity in China. Meanwhile, as the EU and US impose greater tariffs on Chinese-made …
BI hints at rate cuts, timing dependent on currency Bank Indonesia today left interest rates unchanged (at 6.25%), but hinted at possible rate cuts later in the year, provided that the rupiah stabilises against the US dollar. The central bank’s dovish …
This page has been updated with additional analysis since first publication. Norges Bank to be one of last DM central banks to start cutting Norges Bank’s verbal guidance and updated interest rate projections reinforce the message that it won’t start …
SNB cuts rates again, but no further cuts likely this year Today’s decision by the SNB to reduce its policy rate from 1.5% to 1.25% was correctly anticipated by two thirds of economists surveyed by Reuters. (We were in the minority anticipating a hold.) …
This page has been updated with additional analysis since first publication. Economy struggles to gain momentum The modest rebound in GDP last quarter doesn’t change the bigger picture that the New Zealand economy is worse for wear. In fact, timely survey …
No room for rate cuts this year The Brazilian central bank kept the Selic rate unchanged at 10.50% and with the headline inflation rate set to rise further in the coming months, we see no room for a resumption of the easing cycle this year. The decision …
19th June 2024
The US stock market has hit another fresh all-time high, with its ascent is an increasingly lonely one driven by a handful of its constituents. That pattern may be difficult to sustain indefinitely, but we remain optimistic about the outlook for US …
The European Commission’s recommendation to open the Excessive Deficit Procedure (EDP) against Poland, Hungary and Slovakia for breaching the EU’s fiscal rules won’t force a drastic change in policymaking, nor will it deal with the structural factors …
The Monetary Policy Report released by Chile’s central bank today alongside the communications to yesterday’s policy meeting suggest that the easing cycle over the next few quarters will be stop-start. We now expect a pause at the central bank’s next two …
South Africa’s new government of national unity (GNU) will welcome signs that the economy showed signs of perking up at the start of Q2. We think this burst of momentum has further to run, although growth will remain constrained by tight fiscal and …
We expect political uncertainty in France to maintain a floor under government bond spreads in the near term, not only in France but also in other vulnerable euro-zone countries. Further ahead, we see scope for spreads to fall back in Greece, Portugal, …
Inflation unchanged, GNU means rate cuts later this year more likely South Africa’s headline inflation rate was unchanged at 5.2% y/y in May and, while still some way off the 4.5% mid-point of the SARB’s target range, the formation of a government of …
This page has been updated with additional analysis since first publication. Stubborn services inflation still a point of concern for BoE We’ll be discussing the outlook for Bank of England, ECB and Fed policy in a 20-minute online briefing at 3pm BST on …
