We think the best days for US investment-grade (IG) corporate bonds will soon be over. One reason is that credit spreads are now already very low. The option-adjusted spread (OAS) of ICE BofA’s index of US IG corporate bonds, for example, dipped below …
29th January 2024
The worsening in total returns to -3.0% q/q in Q4 was consistent with our expectations of bigger-than-average year-end markdowns. But the major takeaway was that the data and NCREIF’s release notes support our view that there will be growing distress and …
Do maritime disruptions threaten a repeat of pandemic-era supply shocks? Should investors brace for an inflationary resurgence? Amid Houthi attacks on shipping and fears of escalating conflict in the Middle East, a team of senior economists from our …
We think the recent falls in long-dated government bond yields across developed market (DM) economies will extend over the remainder of this year, as central banks generally cut by more than investors currently expect. We project most of those yields to …
The EM monetary easing cycle began to broaden out late last year. Mexico’s central bank will probably be the next to cut rates later this quarter, and many Asian central banks will join the fray in April and May, which is sooner than most expect. India is …
JODI data on global oil and natural gas consumption paint a nuanced picture of global energy demand. While oil demand growth slowed towards the end of last year, consumption of natural gas was recovering from the worst of the energy price crisis. We …
Inflation: Mission accomplished? We maintain a high conviction that core PCE inflation will be back to the 2% target by mid-2024. Despite claims that “the last mile will be the hardest”, core PCE prices have already been running at a 2% annualised pace or …
Bank of Ghana starts its easing cycle The Bank of Ghana kicked off its easing cycle with a 100bp cut, to 29.00%, today and an improving balance of payments position alongside further falls in inflation mean that more cuts are on the cards over the coming …
Were the EU to block Hungary’s access to funds (if it vetoes financing for Ukraine at this week’s summit), as reports on Sunday suggested, this would probably have a smaller direct impact on Hungary’s economy and financial markets than most would think. …
As the 2024 central bank calendar gets properly underway, debate is centering on the related questions of how hard it will be to get inflation back to target (the “last mile”) and the timing of when policymakers will begin cutting interest rates. After …
The Monetary Authority of Singapore (MAS) kept monetary policy settings unchanged today but weaker growth and easing concerns about inflation are likely to prompt the central bank to loosen policy in April. The decision to remain on hold today, for the …
MAS keeps policy unchanged but loosening likely in April. The Monetary Authority of Singapore (MAS) kept monetary policy settings unchanged today which was in line with expectations, but we think weaker incoming activity data and easing concerns about …
Post-ECB and pre-Fed and Bank of England, Group Chief Economist Neil Shearing explains what data dependency means for central banks as they try to gauge when to begin rate cuts – and manage the market’s expectations about when those cuts will start. …
26th January 2024
Takeaways from the SARB meeting The South African MPC’s fears expressed at this week’s meeting about an inflation resurgence look overdone. Even so, with fiscal risks high ahead of the election, officials will continue to tread cautiously. At the …
The US dollar seems set to remain within a tight range against most major currencies this week. At face value, the stronger-than-expected GDP data out of the US might point to a return to “higher for longer”, but the growing evidence of disinflationary …
Similar to the late 1990s, we think the economic backdrop in the US won’t stand in the way of a bubble inflating in the S&P 500. But unlike then, we doubt it will help the dollar much. US equities have rallied since GDP data revealed yesterday that growth …
It was generally a positive week for commodity prices and particularly for industrial metals prices. (See Chart 1.) All major industrial metals finished the week higher, with gains in the region of ~5% for some such as tin and zinc. Chart 1: S&P GSCI …
Lula: looking to the past The Brazilian government’s announcement of a new industrial plan this week points to greater state intervention in the economy that will do little to alleviate the country’s productivity problem. The plan involves c. 300bn reais …
Korean consumers suffering from tight policy Korea’s GDP figures published this week show that, although the economy held up relatively well last quarter, the recovery is becoming increasingly lopsided. Whereas exports grew by 2.6% q/q last quarter and …
It is hard to say which is more remarkable: that GDP growth accelerated last year following the Fed’s most aggressive tightening campaign in decades, or that core inflation nevertheless fell back to the 2% target in annualised terms over the second half …
Hungary skating on thin ice with new rate proposal The proposal by the Hungarian government this week to change the reference rate used to price bank loans risks undermining the central bank’s (MNB’s) independence and presents a further upside threat to …
PBOC is pushing on a string The 50bp cut to banks’ required reserve ratio (RRR) announced this week is the largest since 2021 and will free up around RMB1trn of liquidity when it comes into force on 5 th February. The move has improved investor sentiment …
The outlook for monetary policy all depends on whether the Bank of Canada is willing to act based on where it thinks shelter inflation is heading, rather than its current rate. The Bank’s communications suggest it is starting to move in that direction, …
Seven months of annualised core inflation at target The December income and spending data confirm that core PCE inflation has been running at an annualised pace in line with the Fed’s 2% target for seven months now. This reiterates the message that there …
Most commentators and investors seems to have concluded that yesterday’s ECB meeting paved the way for an April rate cut despite President Lagarde explicitly standing by her view that the summer was more likely. We disagree and now see the risks skewed …
In last week’s UK Economics Weekly we highlighted the lingering upside risks to inflation, which were emphasised in this week’s release of January’s flash PMIs. (See here .) But this week, we need to talk about the risk of deflation. We’ve been …
Fall in inflation keeps another 50bp cut on the cards The slightly larger-than-expected decline in Brazilian inflation in the first half of this month, to 4.5% y/y, seals the deal on another 50bp cut in the Selic rate (to 11.25%) at next week’s central …
Data released this morning suggest that the collapse in the euro-zone’s money supply might be over. But we expect money and lending growth to remain fairly weak. Since the ECB started raising interest rates, the narrow (M1) money supply has plummeted as …
Limited need for large fiscal giveaways As it is an election year, the Finance Ministry will deliver an “interim” Budget on Thursday 1 st February, in place of the annual Union Budget. Interim budgets give an update of the current fiscal year and outline …
Tokyo inflation won’t remain below 2% for long At its meeting on Tuesday, the Bank of Japan sounded increasingly confident that it will be able to meet its 2% inflation target on a sustained basis. And the minutes of the Bank’s December meeting released …
The stock prices of companies in the energy sector (mostly oil & gas firms) have largely underperformed the rest of the stock market recently, and we doubt they’ll do much better in the foreseeable future. The energy sector is the only one in the MSCI All …
Much ado about nothing The headlines this week were dominated entirely by the Australian government’s decision to redesign the Stage 3 income tax cuts that are due to take effect on July 1 st . The long and short of it is that the government wants to …
We think the “tech” sectors of China’s stock market are the best prospects to lead a continued rebound in it, even if we doubt they’ll fare as well as many of their global tech peers over the next couple of years. China’s benchmark equity indices have …
Plunge in inflation casts doubt on ending of ultra-loose monetary policy The plunge in inflation to well below 2% in Tokyo last month was broad-based, casting doubt on the Bank of Japan’s willingness to end negative interest rates. Headline inflation …
25th January 2024
We think the current backdrop is not as favourable for the greenback as the one that prevailed during the dot com era, so we doubt the bubble in US equities we expect would be accompanied by renewed strength in the dollar over the next couple of years. …
Turkey’s policy U-turn underway since the election last year has been relatively encouraging so far and policymakers’ commitment to orthodoxy has given us reason for optimism. While the scale of the challenge of achieving macroeconomic stability is …
Is Egypt setting the stage for ‘Super Thursday’? IMF officials have been in Egypt over the past week to discuss a new financing package and, while no details have filtered through, momentum is building fast and there’s a chance that all will be revealed …
The Q4 RICS survey suggested that occupier and investment sentiment remained pessimistic in Q4. We expect sentiment will be subdued in at least the first half of 2024, with credit conditions staying tight and growing signs of distress, particularly in the …
Output stagnant last year, more of the same in 2024 Global steel production reportedly stagnated last year. We think it probably will again in 2024 as a drop in production in China should offset increasing output by most other producers. According to the …
London house prices were more resilient in 2023 than we had expected, falling by 2.4% y/y in Q4 close to the national average of -2.3% y/y. London is more reliant on mortgaged buyers than other regions and the deterioration in affordability due to high …
While the dovish reaction to today’s ECB meeting came as a bit of a surprise, we continue to think that the direction of travel for Bund yields – and most sovereign bond yields – will be down this year. Today’s ECB meeting played out broadly as had been …
The Riksbank is set to leave its key policy rate unchanged next week but we think it will begin to cut rates in the second quarter and reduce them faster than policymakers are forecasting. As a reminder, the Riksbank left its policy rate at 4.0% at its …
A reversal of the earlier boost from unseasonably mild December weather probably weighed on non-farm payroll growth in January. We expect a more muted 150,000 increase. The annual benchmark revisions should also show a weaker pace of employment growth …
The ECB kept interest rates unchanged and stuck to the argument that a first rate cut is most likely in the summer. An earlier move is still possible if the inflation data are weak in the next few months, but the risks are shifting towards rates staying …
New home sales regain some momentum New home sales rebounded in December, reversing nearly all of their decline in the previous month when mortgage borrowing costs were much closer to their 8% peak. The 8.0% m/m increase in seasonally adjusted new home …
The latest RICS survey offered tentative signs that we could be past the worst of the property downturn in Europe, as both occupier and investment demand balances picked up slightly. However, the big picture remained one of a very weak market. Investor …
Compared to their pre-pandemic averages, metals prices are high even after adjusting for inflation. We think that as green transition-related demand increases and monetary easing gets underway, real metal prices have further to rise in the coming years. …
