Mexican government unwilling to fix Pemex The Mexican government’s underwhelming business plan for Pemex, announced this week, reinforces our view that it is not willing to implement the reforms necessary to stabilise oil production. Against that …
19th July 2019
Despite continued economic growth, a near-record low unemployment rate and still-positive house price inflation, borrowers are increasingly turning to lenders of last resort. That suggests the health of borrowers could be more precarious than it seems. …
We expect to learn next week that second-quarter GDP growth slowed to only 1.6% annualised, from 3.1% in the first, which should reinforce expectations that the Fed will cut interest rates at the FOMC meeting a week later. But politics are likely to take …
Franc leaves exporters with a mountain to climb The widening in Switzerland’s trade surplus in June (data released on Thursday) was driven in large part by weakness in imports and masked a continued slowdown in export growth. The rise in the value of the …
What are investors expecting from the ECB? Next week, we think that the ECB will alter its forward guidance in two ways. First, it is likely to say that interest rates will remain “at present or lower ” levels at least through the middle of next year. And …
Erdogan: rates to be cut in a “serious manner” Comments this week from Turkey’s new central bank governor and President Erdogan suggest that an interest rate cut next Thursday will be followed by further aggressive easing in the coming months. The case …
Plans for further big minimum wage hike scrapped President Moon was elected in 2017 on a pledge to raise household incomes and reduce inequality. The cornerstone of his strategy was to raise the hourly minimum wage to 10,000 won (US$8.50) by 2020, which …
The Office for Budget Responsibility’s (OBR) public finance forecasts in a no deal scenario published in its Fiscal Risks Report this week really do look pretty dreadful. We suspect they overdo the gloom a bit. But either way, whether it is Boris Johnson …
South Africa: More evidence of Q2 rebound Retail sales figures out this week strengthened our view that South Africa’s economy returned to growth in Q2. Based on the data released so far, we’ve pencilled in growth of 1.6% q/q saar. (See here .) Interest …
Builders report slower growth in Q2 China’s economy has faced multiple headwinds over the past year, but it has also received a significant – and underappreciated – boost from accelerating property construction. Property developers report having ramped up …
Slump in gas prices a major concern Reports this week have suggested that the United States will overtake Australia and Qatar to become the world’s biggest exporter of liquefied natural gas (LNG) by 2024. Gas production has soared in recent years, …
Small amount of FX debt could bring benefits The finance ministry’s plans outlined in the FY19/20 union budget to issue a debut foreign-currency bond have drawn criticism from various quarters this week, ranging from esteemed former RBI governor Raghuram …
Spring wage negotiations deliver stable pay hikes This year’s spring wage negotiations between unions and employers (Shunto) ended with a ¥1,560 increase in base pay, equivalent to a 0.5% pay hike, the same as last year. That’s a bit disappointing given …
Threat of harsh US sanctions on Saudi still limited A bill approved by the US House of Representatives this week that seeks to impose sanctions on Saudi Arabia has created headlines, but it is unlikely to result in aggressive action against the Kingdom. …
18th July 2019
Banxico likely to begin cutting rates next month The minutes to the last Mexican central bank meeting, published yesterday, revealed a more dovish shift on the Bank’s Board than we had expected. We now think that an interest rate cut at the next meeting …
12th July 2019
Given the recent run of stronger economic data, we thought the Bank of Canada might sound a cautiously optimistic note following its policy meeting this week, but the statement remained relatively neutral. (See here .) That could be the first sign that …
Chair Jerome Powell signalled earlier this week that the Fed still intended to push ahead with a July rate cut, despite the post-G20 trade truce, the resilience of the labour market and signs of a rebound in inflation. Powell revealed in his testimony …
The Riksbank has fallen well behind the curve The minutes of the Riksbank’s July monetary policy meeting, released this morning, offered little in the way of surprises. As was the case in the February meeting, the decision to hold the repo rate unchanged …
France defies the gloom While the German and Italian economies are in the doldrums, France seems to be doing much better – for now at least. We think GDP expanded by around 0.4% q/q in Q2, following a decent 0.3% increase Q1. Industrial production rose by …
Downside risks to Turkey’s outlook mount Developments in Turkey over the past week highlight that all levers of economic policy have effectively been centralised in the hands of one man – President Recep Tayyip Erdogan. The reaction in financial markets …
Despite the rebound in monthly GDP growth from -0.4% m/m in April to +0.3% m/m in May, the economy probably just about contracted in Q2 as a whole. ( See here .) Some of that is just payback from activity being brought forward from Q2 into Q1 ahead of the …
PBOC rate cut on 1 st August? The Fed has all-but-confirmed that it will cut rates at its upcoming meeting on 31 st July. The PBOC is likely to follow suit, perhaps the next day, with a reduction to its reverse repo rates, the rates at which it lends to …
South Africa: Steady as she goes at the SARB The re-appointment of South Africa’s respected central bank governor will help to allay fears concerning the independence of the Reserve Bank. Governor Lesetja Kganyago is a fierce defender of the bank’s …
How will policymakers respond to a strong baht? Policymakers and exporters in Thailand are once again voicing concern about the strength of the baht, which has appreciated by over 5% against the US dollar since January and is up by just under 9% against …
Yokohama-Chiba Bank tie-up A reorganisation of Japan’s regional banking sector could be brewing as two of its largest banks announced a tie-up this week. Regional banks’ lending margins and capital ratios have been steadily declining. While ultra-low …
Don’t hold your breath for a big rebound At the start of the year, we forecast that the housing downturn would weigh on consumption growth and residential construction causing GDP growth to slow much more sharply than the consensus believed. (See here .) …
Banking sector still needs governance reform India’s authorities have received plaudits in recent years for their efforts to clean up the banking sector. (See here .) But news this week of a fraud scandal engulfing Punjab National Bank (PNB) – the second …
CBE to hold fire today, but rate cuts looming Fuel price hikes announced in Egypt last weekend mean that the central bank probably won’t respond to June’s sharp fall in inflation by cutting interest rates later today. But the easing cycle looks set to be …
11th July 2019
The data this week were consistent with a continued slowdown in economic growth, but don’t yet look weak enough to convince the Fed to cut interest rates immediately. We suspect that Chair Jerome Powell will use his semi-annual testimony to Congress next …
5th July 2019
Despite a swathe of news that should have been positive, commodity prices struggled to make gains this week as concerns about global growth continue to weigh on sentiment . Even the strong US employment data on Friday failed to lift the mood, although it …
Pension reform progressing but hurdles remain Brazil’s much-vaunted pension reform passed an important legislative hurdle this week, although the bill is likely to come up against more substantial resistance in the coming weeks. After various delays and …
The strong export performance in May was an encouraging sign, but the import data imply that investment fell back in the second quarter. The 4.6% m/m rise in exports in May far surpassed the 1.0% m/m increase in imports and pushed the merchandise trade …
Developments this week make us more confident in our view that the ECB will change its forward guidance at its meeting on 27 th July, before cutting its deposit rate in September and announcing in October that it will re-launch QE. The first of these …
Investors now think the next move in interest rates will be down. The black line in Chart 1 shows the market-implied probability of the MPC cutting rates by the meeting on 30 th January has jumped from 27% to 54%. As a result, the 10-year gilt yield fell …
Swiss market shrugs off loss of ‘equivalence’ The Swiss stock market took the expiration of the ‘equivalence’ regime with the EU in its stride this week, mirroring the buoyant performance of other equity markets. The Swiss Market Index (SMI) jumped by …
Fiscal policy being loosened again Early last month, the State Council announced measures to help shore up infrastructure spending. (See here .) Data published this week suggest that this has already led to a shift in the fiscal stance. After dropping …
Oil sector drag won’t prevent Russian recovery The rollover of OPEC’s oil production quotas for nine more months will be an unhelpful headwind for Russia’s economy, but it is unlikely to prevent growth from picking up in the second half of 2019. Russian …
Nigeria: A change of heart on trade? Nigeria’s government finally agreed to join the AfCFTA this week, leaving Eritrea and Togo as the last two holdouts from the pan-African trade pact. While we think that the benefits of the deal have been oversold, it’s …
Abe getting tired of fiscal tightening The Q2 Tankan survey released this week was a mixed bag as it showed a further sharp deterioration in business conditions for manufacturing firms. By contrast, business conditions outside manufacturing worsened only …
Korea-Japan spat – should we be concerned? The restrictions that Japan has announced on the sale of certain technology products to Korea could, if fully implemented, have a significant effect on Korea’s economy. However, past experience suggests that it …
RBA reiterates call for fiscal stimulus The RBA cut rates by 25bp to 1.0% on Tuesday. Following the 25bp cut in June, that marked the first time the RBA has delivered back to back rate cuts since 2012. With rates approaching the zero lower bound, Governor …
Economic Survey sets out lofty ambition The annual Economic Survey released this week differed from previous iterations as it placed more emphasis on India’s long-term outlook. Most notably, the Survey states that it is now an objective of the government …
Saudi economic growth to weaken further GDP data released by Saudi Arabia this week showed that its economy slowed sharply in Q1 and, as the drag from oil output cuts intensifies and fiscal policy is tightened, growth will weaken further. The Saudi …
4th July 2019
If the meeting between Presidents Trump and Xi at the G-20 tomorrow is successful, we would expect both sides to agree to resume negotiations and hold off on imposing new tariffs. But, given the fundamental differences between the two sides, we expect …
28th June 2019
Brazil pension reform: glass half…empty? It’s been a noisy week in Brazilian politics but, while the chances of some kind of pension reform being approved this year have risen, the flipside is likely to be smaller fiscal savings. Reports at the start of …
The recent rebound in new home sales in Toronto is an encouraging sign that the local housing market is not about to emulate the sharp falls in prices in Vancouver. 4,794 new homes were sold in Toronto in May, up nearly 100% from the same month a year …
Economy lost momentum in Q2 Business surveys released this week provided more evidence that the economy slowed again in Q2. The German Ifo Business Climate Index, released on Monday, fell to a 55-month low, and was followed on Thursday by the euro-zone …
Swiss-EU stock market equivalence is no more The spat between the Swiss government and the EU came to a head this week after it became clear that the EC will follow through on its threat to let the current ‘equivalence’ regime for share trading lapse from …
Turkey’s fiscal credibility under scrutiny Investors in Turkey will be nervously waiting to see if President Erdogan can persuade President Trump at the G20 to approve Turkey’s purchase of a Russian missile defence system, lifting the threat of sanctions …
The chances of the economy escaping a quarterly contraction in Q2 seem to be receding in light of the latest surveys and official data. Indeed, we can take less comfort from Q1’s GDP figures now that we have the second estimate. Stockbuilding is now …
