Dragon years have been middling for economy The world’s largest annual migration of people is well underway, with millions of Chinese returning to their hometowns to spend the Lunar New Year holiday with their families. On Saturday, the Year of the Rabbit …
8th February 2024
External demand strong, domestic demand weak The Q4 GDP data due next week are likely to show that the economy staged a partial rebound after the sharp contraction in Q3. But the details will probably confirm that domestic demand remained weak. Indeed, we …
The DXY index seems set to close this week at its strongest level in almost two months, breaking out of a narrow range amid a flurry of data releases out of the US. Consistent with Fed Chair Powell’s continued emphasis on data dependence, signs of …
2nd February 2024
Naira plunges again, is the policy shift back? This week the naira dropped for a second time in eight months, contradicting months of claims by officials that the currency will witness a revival. The hope is that this new found policy pragmatism extends …
We have revised down our forecast for US natural gas prices this year, as the outlook for domestic supply has improved. In the near term, a perfect storm of impediments to exports has emerged and sent spot prices tumbling. Henry Hub was down by over 20% …
First rate cut delayed until May Based on the steer provided by Fed Chair Jerome Powell halfway through this week’s press conference, we now expect the first Fed rate cut to come at the early-May FOMC meeting rather than in mid-March, with the Fed cutting …
Milei’s shock therapy plan suffers another blow As expected, the IMF Board signed off on the seventh review of Argentina’s $44bn programme this week. This gives the country access to the next loan tranche of $4.7bn to support “authorities’ upfront policy …
The upside surprise to fourth-quarter GDP should, somewhat counterintuitively, make the Bank of Canada more confident that inflation is heading back to 2% because it implies that productivity has rebounded. Nonetheless, with the Federal Reserve pushing …
Rate forecast changes on more hawkish Fed Our US Team changed their interest rate forecasts on Wednesday after Federal Reserve Governor Powell pushed back against the possibility of a rate cut in March. We now expect a first cut in May. In response we are …
The Bank of England caused a lot of waves in the media and some ripples in the markets this week. But it hasn’t altered our thinking that lower inflation than the Bank of England expects will mean rates are cut from 5.25% to 5.00% in June and all the way …
EM Drop-In : We'll be discussing EM policy easing, debt risks and the outlook for bond yields in our monthly EM drop-in on Thursday 8th February . Register here . Ukraine aid deals ends a week of uncertainty Hungary dropped its veto against the EU’s …
TFP touted as key metric for Xi’s new growth model President Xi has spoken a lot in recent years about the need to foster “high-quality development” (HQD). There have been a raft of policy documents and state media editorials attempting to flesh out what …
Price hikes back on the menu Data released this week support the case of ECB policymakers who are concerned about the strength of domestic inflation. January’s European Commission business and consumer survey, released on Tuesday, suggested that selling …
Kishida pushing for wage increases PM Kishida pledged on Tuesday that the government will “take all possible steps” to raise real incomes this year. While he mentioned no new measures, his government recently rolled out tax breaks for firms that offer …
Finance Ministry focuses on consolidation Despite the looming general election, we had expected the Interim Budget for FY24/25 to be a muted affair. In the event, the Finance Ministry showed even more restraint than had generally been anticipated. The …
RBA will soon be gearing up for rate cuts… CPI data released this week bolstered our conviction that the Reserve Bank of Australia will loosen policy in Q2, rather than in Q4 as the analyst consensus is predicting. For one thing, both headline and trimmed …
Why has the Saudi gov’t changed Aramco’s policy? Aramco announced this week that it received a directive from the Saudi state to suspend plans to raise oil production capacity, but we don’t think this is a sign that actual output will remain low for …
1st February 2024
Carbon pricing in the news Amid a flurry of news and action in carbon markets in recent months, this note examines the details and implications of developments around the world, starting in the EU. The EU’s Emissions Trading Scheme (ETS) is the world’s …
31st 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 …
26th January 2024
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 …
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, …
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 …
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 …
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 …
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 …
25th January 2024
SARB to stay on sidelines until after the election? Remarks by South African Reserve Bank (SARB) Governor Kganyago this week have increased the risk of rates staying higher for longer, particularly if fiscal risks build ahead of the election. Governor …
19th January 2024
The US dollar’s rebound has gained momentum this week amid hawkish rhetoric from Fed officials and more evidence out of the US – notably retail sales and jobless claims – of continued resilience in the economy there. So far this year, currency markets …
We argued last week that there was little to support the idea that the “last mile” of getting inflation back to 2% will somehow be the hardest. But new data on rent inflation released this week raise the possibility that the disinflationary process won’t …
There was little for the Bank of Canada to be encouraged by this week, with evidence of a further deterioration in the economy yet little sign of a fall in inflation expectations or downward pressure on core inflation. That puts the Bank in a tricky …
El Niño : both a blessing and a curse El Niño-fueled rainfall has provided some relief to Argentina’s agricultural sector, which was hit hard by last year’s severe drought . The Rosario Grains Exchange expects soybean and corn output to rise by 160% and …
Revising down our Hungary interest rate forecast In Hungary, dovish comments from the central bank (MNB) deputy governor this week and recent softer-than-expected inflation data have prompted us to revise down our interest rate forecast. We had flagged …
Recent falls likely to be reversed soon Asian currencies have made a poor start to the year, with most having fallen by 1-4% against the US dollar. (See Chart 1.) The falls are largely a reflection of an upward shift in US interest rate expectations …
This week’s data releases called into question our forecast that the UK economy will experience a soft landing, by which we mean inflation falling back to the 2.0% target without a big contraction in GDP. Could cigarettes and containers ignite the CPI? …
Data released this week suggest that the euro-zone economy may have contracted a bit more than expected at the end of last year. Germany’s first and “very preliminary” estimate of Q4 GDP suggests that it fell by 0.3% q/q. (See here .) And euro-zone …
Russian oil imports drop as G7 cracks the whip We learnt this week that the goods trade deficit narrowed from US$20.6bn in November to US$19.8bn in December, the smallest monthly trade deficit since July. (See Chart 1.) Both imports and exports rose last …
GDP breakdown points to rebound in tech & retail Officially, GDP growth slowed last quarter in q/q terms. But as we noted in our response to the data, this does not seem consistent with wider evidence of a slight improvement in momentum recently. On …
Disinflation unlikely to stall Earlier this week, we learnt that new dwellings commencements continued in a tailspin, with housing starts falling to a 11-year low of 37,000 in Q3. That led some commentators to sound the alarm on how the resulting …
Note: Join us on our upcoming Asia Drop-in on 25th January. We’re discussing China’s missing stimulus, the Asian monetary policy outlook and much more. Register here for the 20-minute online briefing. Inflationary pressures moderating Inflation fell to an …
Egypt needs enhanced IMF deal urgently Egypt’s foreign currency woes remained in the spotlight this week, highlighting the importance of getting an enhanced IMF deal over the line in order to avoid a disorderly balance of payments crisis. This week …
18th January 2024
South Africa climate efforts at risk from power plan South Africa’s draft energy plan presented bad news to those concerned about loadshedding and the commitment to reducing greenhouse gas emissions. South Africa’s Integrated Resource Plan (IRP) set out …
12th January 2024
The latest Trans Mountain regulatory hearing will determine whether the pipeline expansion is once again delayed. That would weigh further on the outlook for exports, with external demand already very weak. Another year, another year’s delay? Admittedly, …
Inflation data surprise to the downside The softer-than-expected December inflation data released across Central and Eastern Europe (CEE) this week suggest that further interest rate cuts will be delivered across the region over the coming months and, in …
