While the dollar has dropped back sharply over the past week, we continue to think that its rally has further to run as the global economy slows further and safe-haven demand intensifies. After a strong run since the middle of August, during which the …
4th October 2022
With monetary tightening cycles approaching their ends in many emerging markets (EMs), we think local-currency (LC) sovereign bond yields will, in general, be much lower in a couple of years than they are now. But we anticipate a significant amount …
It has been five years since the People’s Bank last dipped into its own foreign exchange reserves on a significant scale to support the currency. Since then, it is widely believed …
3rd October 2022
As has been the pattern for much of this year, a sharp rise in government bond yields in September heaped yet more downward pressure on stock markets, with the S&P 500 reaching its lowest level since late 2020 earlier this week. Since central banks in …
30th September 2022
While the Bank of England’s temporary U-turn on its balance sheet has caused Gilts to rally strongly, we suspect their yields will remain high for some time yet. The Bank of England dramatically intervened in the Gilt market on Wednesday in response …
29th September 2022
The Bank of England appears to have prevented the financial market fallout from the loose fiscal plans revealed in the Chancellor’s mini-budget from escalating into a full financial crisis. Since it committed to buy £65bn of long-dated gilts on …
The Egyptian pound has continued to weaken as the central bank (CBE) has taken tentative steps towards a more flexible exchange rate, and we think that the currency needs to weaken further to address the country’s external imbalances. Measures to tackle …
Just like their peers in advanced economies, monetary policymakers across Sub-Saharan Africa have turned more hawkish recently. Central banks in South Africa and Nigeria hiked interest rates aggressively this month. Reining in inflation is clearly the …
The fall in headline inflation to 7.0% in August, from 7.6%, was largely due to energy price effects, but there were also some encouraging signs that underlying inflationary pressures are easing. The number of individual CPI components that rose by more …
28th September 2022
The ramping up of the US Fed’s hawkish rhetoric has turbocharged the dollar’s appreciation against EM currencies, with most falling by 2-6% against the greenback since the start of the month. (See Chart 1.) Reluctant to allow currencies to slide too …
27th September 2022
Latin American currencies have come under pressure this month which will put further upward pressure on inflation, but the bigger picture is that headline rates are at, or close to, a peak across the region. Indeed, headline rates in Brazil and Peru are …
Inflation now seems to be approaching a peak across the region. Commodity prices have fallen, supply constraints have eased, pipeline price pressures have softened and firms’ selling price expectations have declined across CEE. CPI inflation has already …
22nd September 2022
All-property yields saw a large rise in August, as concerns around valuations increased. (See Chart 1.) And, with the energy support package set to boost interest rates and the economy probably already in a mild recession, yields will see further …
The 1.7% q/q rise in New Zealand’s production GDP and the 0.9% q/q rise in Australia’s GDP in Q2 were among the strongest increases among major advanced economies. (See Chart 1.) However, GDP growth will slow sharply over coming quarters. Recent output …
The RBI this month asked four public-sector banks to trial its central bank digital currency (CBDC) before year-end, keeping to the timeline that it set out when plans were first announced in the FY22/23 Union Budget. As our CBDC handbook explains, any …
21st September 2022
The Fed looks set to deliver a third consecutive 75bp rate hike tomorrow, but if we’re right that inflation will fall back soon, officials will quickly pivot to much smaller hikes. The continued drop in gasoline prices and easing food inflation will …
20th September 2022
Monetary policy makers across Emerging Asia remain in hawkish mode – every central bank in the region with the exceptions of China and Vietnam has now raised interest rates this year – and further hikes are likely over the next couple of months. …
15th September 2022
Overview – Energy prices have been falling recently as concerns about weaker demand took centre-stage, but we expect constrained supply to put a floor under prices in the coming months. By contrast, we expect industrial metals prices to fall further given …
14th September 2022
The latest data have revealed that the world’s major economies are all struggling, but for different reasons. In Europe, the energy crisis is largely behind the recent softness in consumer and industrial activity. In the US, higher interest rates are …
Consumer price inflation has continued to accelerate in Switzerland and across the Nordics, adding to the pressure on central banks to tighten monetary policy more aggressively. In Switzerland, headline inflation reached 3.5% in August, which is low by …
Strong US CPI data this week triggered a renewed slide in the yen to the brink of 145 and warnings from the Ministry of Finance that it could intervene ( 1 ).The Bank of Japan is also reported to have resorted to a yen rate check – calling dealers to …
London house prices and transactions have proven resilient to the headwinds of the cost-of-living crisis and rising mortgage rates so far. House price growth in London rose to 7.2% y/y in Q2, the highest since 2016. But that was still below the national …
13th September 2022
Stretched affordability continued to weigh on housing market activity in July and August, leaving mortgage applications for home purchase down by 40% from their high in January. A renewed rise in mortgage rates to above their previous peak of 6% in the …
9th September 2022
The possible policy of the new Prime Minister, Liz Truss, to freeze the utility price cap at £2,500 until sometime in 2024 will dramatically lower the near term path for CPI inflation. Rather than rise from 10.1% in July to around 14.5% in January, it …
7th September 2022
European gas prices have been on a rollercoaster ride over the past month, rising to a peak of €340/MWh before falling back to around €240 to leave them about 50% higher than at the time of the ECB’s last meeting. That has increased the risk of …
While the euro, sterling, and most other European currencies have already fallen significantly against the dollar over the past year or so, we now expect them to weaken further over the next twelve months as the economic slowdown and the terms of …
1st September 2022
While European prices for natural gas have retreated in recent days, the widely tracked TTF benchmark has still risen by more than 20% in August, and remains at a level about ten times higher than was typical prior to last year. Europe’s energy crisis …
31st August 2022
Relatively peaceful election proceedings in Kenya and Angola this month have provided a lift to investor sentiment. But with the respective losing presidential candidates challenging official results through the courts, the risk of violence lingers. …
The renminbi has weakened 2.5% against the US dollar since mid-August and is nearing our year-end forecast of 7.00/$. This is mostly a reflection of broad dollar strength – the …
Resilience so far, but much tougher times ahead Economies across the region were generally resilient in Q2 despite tightening financial conditions and the war in Ukraine. Russia’s downturn was milder than expected as it was able to re-orientate trade to …
We think developed market (DM) monetary policy may be a threat to emerging market (EM) assets for some time yet . Hawkish monetary policy has arguably been the biggest headwind for global financial markets this year. Rapid upward revisions to …
Headline inflation has risen further across the region in recent months. This has been most pronounced in the non-Gulf economies which have been particularly exposed to spillovers from the war in Ukraine due to their positions as large net commodity …
30th August 2022
The region faces a busy political calendar. Chileans head to the polls on Sunday to vote on a new constitution which would usher in sweeping changes to the country’s current economic model. While the latest polls suggest that the charter will be …
GDP data for Q2 (Q1 of FY22/23) due next week should show that the economy grew at a robust pace last quarter despite the onset of monetary policy tightening. And more timely indicators suggest that the economy has held up well so far in Q3 too. The …
26th August 2022
The rebound in the prices of “risky” assets has stalled recently and we expect it to go into reverse over the rest of this year as economic growth in many major DMs disappoints and appetite for risk deteriorates. Risky assets generally continued to …
The Nordic and Swiss economies performed relatively well in Q2, while prime rents showed further rises in Scandinavian office and industrial markets. However, the economic outlook has darkened, which will weigh on rental growth further ahead. And a …
Higher interest rates and a weaker economic and property outlook contributed to a rise in all-property yields in Q2. While office and industrial rents still made solid gains, this increase in yields resulted in a slowdown in capital value growth. …
25th August 2022
Q2 data showed a mixed picture across the three sectors. For offices, the northern coastal markets continue to lag, with rent growth turning positive but still weaker than most other markets. Houston had an awful quarter for demand, and new supply …
24th August 2022
The surge in interest rates so far this year has contributed to a sharp decline in home sales but, so far at least, that has not weighed on construction activity. Housing starts averaged 279,000 annualised between May and July, 10% higher than the prior …
The growth outlook for the emerging world has taken a turn for the worse. The latest activity data for China suggest that the post-lockdown recovery has lost steam. The PBOC has responded by lowering interest rates and we expect further easing, but we …
23rd August 2022
After a year-long contraction in real disposable incomes, the sharp declines in energy prices over recent weeks are finally providing some relief. Alongside continued strong employment growth, we calculate that the drop in retail gasoline prices to …
22nd August 2022
As the economy slowed in Q2 and interest rates rose, investors appear to have become less willing to compete property yields lower and investment volumes look close to turning. While occupier demand was steady in most sectors, there were signs of a …
While quarterly rental rises surprised on the upside in Q2, property yields also rose sooner than expected. This meant all-property capital values barely grew on the quarter and slowed to around 5% y/y, from almost 7% y/y in Q1. (See Chart 1.) Given Q2 …
Australia’s house prices are now falling at a similar rate as they did during the 2017-19 downturn, which was the largest in the country’s modern history. (See Chart 1.) Home sales remain well above pre-pandemic levels, building activity is holding up …
There have been growing signs that we are at the turning point in global inflation. Commodity prices and shipping costs are down both in y/y and level terms, while product shortages have alleviated as softer demand and fewer bottlenecks have opened up …
12th August 2022
We’ve been warning for some time that CPI inflation would rise further than most people expect, triggering a recession. The prospect of even bigger rises in utility prices on 1 st October and in the first half of 2023 than we have pencilled in suggests …
10th August 2022
With a record virus wave sweeping across the country and consumer confidence slumping, we’re slashing our forecast for Q3 consumption growth from 0.8% to 0.2%. While the government has refrained from declaring another state of emergency, spending was …
8th August 2022
Euro-zone GDP increased by more than we had expected in Q2 as reopening effects boosted the services sector, particularly in the southern countries. But things have already taken a turn for the worse. Business surveys are pointing to a big drop in …
4th August 2022
Given our forecast that the Bank of England will raise interest rates from 1.25% now to a peak of 3.00%, we still think that gilt yields have further to rise. However, with attention in the markets turning towards the prospect of lower inflation and …
29th July 2022
We now think that the reduction in consumer real incomes due to high inflation will push the economy into recession this year. But the Bank of England is likely to have to keep on raising interest rates regardless in order to bring inflation back down to …
