The Trump administration’s surprise announcement this week that it intended to delay the introduction of the 10% tariff on more than $150bn of finished consumer goods may have saved the Holidays, but it provided only a brief respite for the stock market …
16th August 2019
SNB FX interventions are gathering pace Spare a thought for the poor FX team at the SNB: while much of Europe is away on holiday, data released on Monday showed that they recently had their busiest week of interventions since April 2017. It’s worth noting …
Whereas an inverted yield curve has been a good indicator of US recessions, the UK yield curve is less reliable. The US treasury yield curve has inverted before all five US recessions in the past five decades, with only one false positive. Over the same …
German yield curve not a good guide to recessions With all the talk of inverted yields curves predicting a recession in the US, it is worth taking a closer look at what yield curves are telling us in the euro-zone. The most obvious place to start is …
Russia: slow and bumpy recovery ahead Russia’s economy staged a recovery in Q2, but the early evidence suggests that the economy failed to gather momentum at the start of Q3. The preliminary Q2 GDP figure released on Monday showed that the economy …
Nigeria: President calls for tighter FX curbs President Muhammadu Buhari directed the CBN to further restrict importers’ access to the official FX market this week, raising fears that higher food prices would add to inflationary pressures. But the failure …
Global recession fears Weak data earlier this week from China and Europe, the worsening political crisis in Hong Kong and the fall in long term bond yields in the US have all helped raise fears of a sharp slowdown in global economic growth. While we think …
Foreign firms hardest hit by industrial slowdown Growth in industrial value-added fell to a 17-year low in July, according to data published this week, triggering renewed concerns about China’s economic outlook. Admittedly, these figures haven’t always …
Further loosening still likely in near term In a wide-ranging interview with the Economic Times published this week, Prime Minister Modi commented on several economic issues. Plenty of emphasis was placed on the measures taken to revive economic growth …
Reiwa celebrations or pre-tax spending rush? The preliminary estimate of Q2 GDP showed a strong 0.4% q/q increase in output. One of the drivers was a 0.6% q/q jump in private consumption. Much of the media coverage has attributed this to consumers …
Strong jobs growth unlikely to last The RBA’s latest Statement on Monetary Policy highlighted the tension between soft income and GDP growth on the one hand and strong employment growth on the other hand. We’ll have to wait until early September to find …
With economic growth slowing rather than collapsing and both wage and price inflation rebounding in recent months, further interest rate cuts are hard to justify on purely economic terms. Admittedly, a further escalation of the trade war in the coming …
9th August 2019
Argentina elections: your primer on the primaries Argentine markets are likely to take their cue from the outcome of Sunday’s primary election when they open next week, but the vote doesn’t always foreshadow the presidential election outcome. Argentina’s …
The fall-out from the escalation of the US-China trade war, as well as signs of even weaker GDP growth in Europe, moved market expectations for the Bank of Canada’s policy rate closer to our own forecasts this week. That, combined with greater demand for …
No end in sight to the downturn in Sweden The latest data releases for June from Sweden show that the flash estimate of a contraction in the economy in Q2 was no rogue reading. We learned on Tuesday morning that private sector production fell for the …
Industry’s outperformance coming to an end June’s terrible industrial production data for Central Europe provided the first clear sign that weakness in the euro-zone is dragging manufacturing activity in the region down. After rising strongly for most of …
The contraction in GDP in Q2 together with the partial inversion of the gilt yield curve has raised concerns that a recession in the UK is on the way if it’s not already here. Indeed, the 0.2% q/q fall in GDP in Q2 suggests the UK is half way towards a …
Bigger budget deficits on the way Italy now looks set for an early election. Relations between the two coalition partners have broken down, and the leader of the junior partner has called for a vote of confidence in the government. That said, even if it …
ZAR: Currency weakness homegrown The South African rand had a tough time this week, shedding 2.3% against the US dollar. Indeed, the currency is now weaker than our end-year forecast of ZAR15/USD. But while this has coincided with a generalised fall in EM …
Balance sheets resilient… The plunge in oil prices over the past week won’t result in balance sheet strains in the Gulf economies, but it does strengthen our view that governments in parts of the region, most notably Saudi Arabia, will resume fiscal …
8th August 2019
More depreciation ahead The People’s Bank (PBOC) allowed the renminbi to weaken beyond 7.00 against the US dollar this week in response to Trump’s most recent tariff threat. We doubt the PBOC would have taken this step if it wasn’t willing to let the …
Escalation of crisis would have limited impact The Indian government this week revoked a long-standing constitutional provision that granted special autonomy to the state of Jammu & Kashmir. The measures will split the state into two separate “union …
RBNZ cuts while RBA holds In Australia, the RBA kept rates on hold at 1.0% this week, as widely expected. But the Bank acknowledged that the uncertainty generated by the trade war had increased and noted that it would “ease monetary policy further if …
New currency forecasts In response to the renewed falls in Asian financial markets over the past week and the further escalation of the trade war between the US and China, we are revising some of our currency forecasts for this year. The drop in the …
Yen climbs to 17-month high against dollar Two months ago we predicted that the US would eventually impose tariffs on all imports from China. (See here .) Indeed, President Trump announced last week that he will impose an additional 10% on the remainder …
Large Mexico stimulus raises fiscal risks The large fiscal stimulus unveiled by Mexico’s new finance minister this week will support activity, but it raises medium-term fiscal risks. We always argued that the change of finance minister last month was …
2nd August 2019
Yesterday’s announcement by President Trump that a 10% tariff is to be levied on $300bn worth of Chinese goods came as a shock after reports of “constructive” trade talks between the US and China earlier in the week. While rising protectionism has …
Despite cutting rates by 25bp this week, the Fed gave no indication that it is lining up another cut soon or that this will mark the start of the extended easing cycle investors are hoping for. But with President Donald Trump’s subsequent move to …
May’s GDP data suggest that the economy was in better shape than the Bank of Canada thought in the first half of the year. But a further deterioration in the global business surveys, coupled with an escalation in the trade war between the US and China, …
July surveys point to continued weak growth The slowdown in euro-zone GDP growth from 0.4% q/q in Q1 to 0.2% in Q2 was in line with our forecast and the ECB’s. (See here .) We don’t yet have an expenditure breakdown for the euro-zone as a whole, but the …
Swedish economy to flirt with recession… The 0.1% q/q fall in Swedish GDP in Q2 is unlikely to be the final word on the matter given that the data are almost certain to be revised in September. (See here .) Nonetheless, the release adds to signs that the …
MPC living in an alternative reality In our latest UK Economic Outlook , “ An economic multiverse ” (16 th July) , we set out the different paths politics could send the economy down. The MPC took a different approach this week, forecasting an alternative …
CBRT too sanguine on inflation risks The Turkish central bank’s optimistic inflation forecasts add weight to our view that it is likely to go too far with monetary easing and will ultimately have to reverse course further down the line. In its latest …
Eskom: Between a rock and a hard place… While Eskom’s problems are often blamed on corruption and poor management, its recently-released annual report underlined the scale of the structural challenges facing the firm. Eskom faces the significant …
Tax hike countermeasures progressing well Implementation of the government’s flagship measure to cushion the blow of October’s sales tax hike is ahead of schedule. Hiroshige Seko, the Minister of Economy, Trade and Industry, said this week that 240,000 …
Hopes of strong rebound dashed Data released this week provide further evidence that the economy is performing below capacity. Admittedly, house prices appear to be bottoming out. Average house prices in the eight capital cities edged up in July. What’s …
Tariff man strikes again President Trump re-escalated trade tensions overnight by announcing a 10% duty, effective 1 st September, on the $300bn worth of US imports from China yet to be subject to tariffs. We estimate that this will directly knock of …
Mixed Q2 GDP figures, signs of export revival Second quarter GDP figures will be coming in thick and fast over the next few weeks. For the countries that have reported already, the numbers have been a mixed bag. In q/q terms, growth slowed in Hong Kong …
Fiscal deficit target likely to be exceeded India’s fiscal deficit in Q1 of FY19/20 (April to June) provides little assurance about the government’s ability to meet the 3.3% target that it set in the union budget last month. Data released this week show …
Saudi fiscal loosening unlikely to last much longer Budget figures released this week in Saudi Arabia showed that the government loosened fiscal policy in Q2 but, if oil prices remain low (as we expect), the authorities will reverse course in the coming …
1st August 2019
Mexico: avoiding a recession…just Mexico’s preliminary Q2 GDP figures due next week are likely to show that the economy stagnated, dodging a technical recession. But whether the growth figure is above zero or not, the key point is that the economy is …
26th July 2019
Commodity prices have largely been treading water, ahead of some major events next week . The Fed will announce its interest rate decision on Wednesday. A 25 basis points rate cut is already priced into financial markets, but anything more could prompt a …
Dovish ECB to make life difficult for the SNB Having seen the Swiss franc post multiple fresh two-year highs against the euro early in the week, the SNB will have welcomed the drop in the currency after the ECB meeting on Thursday. The fall was mirrored …
The Fed is likely to cut interest rates by 25bp at next week’s FOMC meeting. New York Fed President John Williams put the markets into a frenzy last week by arguing in a speech that the Fed should move quickly to ease policy at the first signs of a …
At Thursday’s press conference, the ECB laid the groundwork for policy easing in September. The change to its forward guidance suggests that a rate cut is pretty much a done deal. But the Bank also “tasked the relevant committees” with looking into other …
This week brought more gloomy news about the state of global manufacturing, which will make it even harder for the recent strength of the factory sector in Canada to be sustained. Canadian manufacturing has recently bucked weaker trends elsewhere. We …
Turkish central bank playing with fire Turkish financial markets took Thursday’s larger-than-expected interest rate cut in their stride but we don’t think that this resilience will last. Investors seems to be coming round to our view that the central bank …
Looser fiscal policy on the way It came as no surprise that Boris Johnson became the UK’s new Prime Minister this week. ( See here .) And in his first speech in Parliament on Thursday there was no sign of him rowing back on his campaign pledges for the UK …
Eskom: Another bailout, still real solution A new cash injection for Eskom has underlined the scale of the firm’s problems and increased the risk of a sovereign rating downgrade in November. The government will grant another ZAR60bn in 2019/20 and 2020/21 …
Limited trade war impact on FDI flows, for now There was no net increase in direct investment by Chinese firms in the US last year according to the annual US Bureau of Economic Analysis report on direct investment, which was published this week. (See …
