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We think business insolvencies may rise to a record high of around 8,400 per quarter by Q2 2024 and take until at least early 2025 to return to a more “normal” level of just over 4,000 per quarter. The total rise in insolvencies above this normal level is …
9th February 2023
The unexpected surge in payroll employment in January has led to claims of an economic resurgence that will force the Fed to keep hiking interest rates but, on balance, we still think the real economy is losing momentum and will eventually tip into …
8th February 2023
We think sovereign bond yields in Canada, Australia, and New Zealand will drop further by end-2023. The central banks of Canada, Australia, and New Zealand have generally been at the forefront of this tightening cycle in terms of starting to hike rates ( …
The surge in interest rates and tightening in credit conditions last year resulted in a broad-based plunge in loan demand in the fourth quarter. Most banks expect to continue tightening standards this year, suggests the recent drop back in long-term …
7th February 2023
Most, but not all measures of house prices show that they are falling. That has led some to contend that cash buyers may be supporting prices. But we think it is just a matter of time before the ONS House Price Index (HPI) catches up with the Nationwide …
6th February 2023
We expect a further slowing in office completions over the next few years as a combination of factors weigh on the profitability of new projects. But our latest review of the metro-level completion forecasts saw large upward revisions for Austin, NYC and …
3rd February 2023
Despite some better news recently, we still think that advanced economies face a tough couple of quarters, an outturn which does not seem to be fully discounted in financial markets. With this in mind, our view remains that risky assets in general will …
The rise in yields in the final quarter of last year was larger than that seen at the start of the GFC. While the magnitude of the rise can be explained by the jump in risk-free interest rates, the speed of the repricing has been a surprise. The surge in …
While raising rates by 50 basis points (bps) today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but perhaps via two 25bps increases rather than one 50bps rise. …
2nd February 2023
As expected following a blitz of speeches by officials ahead of the blackout window, the Fed raised its policy rate by a smaller 25bp, to between 4.50% and 4.75%, but tempered any hopes of a major dovish shift by maintaining the language in the statement …
1st February 2023
Despite the rebound in JOLTS job openings in December, voluntary quits fell slightly and point to a further moderation in both wage growth and PCE core services (ex housing) inflation. Job openings rebounded to 11.0 million in December, from 10.4 …
With interest rates nearing a peak, the next two phases of monetary policy will most probably be rates being held at that peak and then being cut. The Bank of England may soon provide some guidance on both, although ultimately it will be the economy that …
The shift away from floating-rate to fixed-rate mortgages has meant that it was always going to take longer than in past tightening cycles for the rise in interest rates to feed through to the real economy. This is one reason why we think that once Bank …
On the precipice of a recession Our tracking models now suggest the economy is more likely than not to be in recession in three months’ time, supporting the message from the latest surveys and hard activity data that GDP is likely to contract in the first …
31st January 2023
While we expect employment to weaken, it’s happening at a glacial pace. That feeds into our view that once interest rates peak (perhaps at 4.50% up from 3.50% now) they will stay high for all of this year. Employment rose by 27,000 between August and …
We think that the euro-zone will enter a recession in the first half of this year and then experience a slow recovery. Our new GDP forecasts show a 0.5% contraction in 2023 and growth of only 0.8% next year. Data released this morning confirmed that the …
It’s well known that, with the yield curve inverting the Fed is now racking up losses, but what is less appreciated is that the higher interest payments it is making are going mostly to foreign banks and money market funds. The Fed earns interest on …
30th January 2023
The shift away from floating-rate to fixed-rate mortgages presents risks as well as benefits. It will protect homeowners who are lucky enough to have a long time remaining on their fixed rate contract from higher mortgage payments. But that reduces the …
The conventional wisdom is that the annual spring wage negotiations (Shunto) are a bellwether for wage growth. In reality, the small number of employees covered by the talks and their bias towards workers in large manufacturing firms means that the Shunto …
Our forecasts for house prices, mortgage rates and incomes over the next few years mean affordability will remain relatively stretched compared with the past 15 years. But there is good reason to think that mortgage payments as a share of income were …
27th January 2023
Although we think there is still a decent case for UK equities to continue outperforming those in the US over the next few years, we don’t expect the UK’s stock market to perform significantly better than stock markets in the euro-zone over that period, …
26th January 2023
The Bank of Canada accompanied its smaller 25 bp hike with new guidance that it intends to hold the policy rate at the current 4.5% while it assesses the impact of the cumulative interest rate increases so far. While the Bank did not rule out future …
25th January 2023
We expect the slowdown in investment activity in the second half of 2022 to persist into the first half of 2023. But we think transactions will begin to recover later this year once interest rates have topped out and much of the valuation adjustment has …
20th January 2023
We now think German industry will continue to grow in the coming months as lower gas prices, easing supply shortages and high backlogs of orders support production. One of the reasons for the resilience of the German economy in the face of the energy …
With inflationary pressures easing and the global growth outlook improving, we no longer expect the US dollar to breach its late September peak. But we still think that souring risk appetite associated with recessions in developed markets will boost the …
The Fed’s hawkish transformation has been so marked that, if its forecasts are to be believed, over the next couple of years it would effectively be adopting the same reaction function last followed during the Greenspan and Bernanke eras between 1987 and …
19th January 2023
Movements in REIT pricing provide a good indication of where property capital values are heading. And the latest data are consistent with our expectation that all-property values will see a peak-to-trough fall of around 20% by the end of this year. But …
18th January 2023
The BoJ kept policy settings unchanged today, but the increase in its medium-term inflation forecasts supports our view that Yield Curve Control will be abandoned once a new Governor takes over in April . Following the unexpected widening of the tolerance …
The shortage of new housing caused by the government’s HomeBuilder grant is showing signs of easing. That means that the housing downturn should soon start to weigh on homebuilding in earnest and that new dwellings inflation will continue to slow. The Q3 …
House prices fall further despite lower new listings The large fall in new listings in December failed to prevent another sizeable drop in house prices, but the improvement in the sales-to-new listing ratio offers some hope that the downward pressure on …
17th January 2023
The process of “global fracturing” that we outlined in our annual Spotlight series last year will remain the dominant macro theme for the next decade. But speculation that it will result in the rise of a “petroyuan” on a scale sufficient to challenge …
The recent resilience of the economy to the dual drags of high inflation and higher interest rates doesn’t mean the pain has been avoided. Instead, our analysis suggests that higher interest rates will become a bigger drag on activity in the most …
16th January 2023
This Update makes four key points about corporate earnings in the US as the Q4 results season gets into swing. They all feed into our view that the S&P 500 will remain under pressure until the spring and underperform Treasuries as a recession there begins …
13th January 2023
While the medium-term outlook for the renminbi and other Asian currencies has improved, and we have revised some of our forecasts accordingly, we continue to anticipate that a deterioration in risk sentiment as other major economies slide into recession …
Our updated remote worker metro ranking shows some important changes since the end of the pandemic, though the winners remain in the South. Nashville tops the table, having climbed seven places. Tucson and Memphis also climb into the top 10, with …
11th January 2023
Reform of the French pension system is notoriously difficult and it is possible that the proposals unveiled yesterday will be watered down or even withdrawn completely. However, on balance, we think there are more reasons for cautious optimism that they …
The activity and labour market data imply the economy carried more momentum into 2023 than we expected, but the weakness of temporary employment suggests cracks are showing beneath the surface. The revised preliminary estimate that GDP edged up by 0.1% …
10th January 2023
After a stellar first six months, rising interest rates and a slowing economy brought commercial property returns crashing down in the second half of 2022. All-property total returns are therefore set for their worst year since 2008. And 2023 will not be …
While the shift towards higher taxes and spending after the pandemic appears to be here to stay, there is little to suggest an expanded state would curtail GDP growth. But without supply-side reforms aimed at solving the UK’s fundamental problems of low …
The apparent resilience of employment in December has boosted hopes that the US can avoid a recession, but we still think that is unlikely. Employment is a coincident indicator whereas the only genuine leading indicators in the employment report – …
9th January 2023
Mortgage rates have probably now peaked, but they remain at a level that makes further steep falls in house prices and a slump in housing market activity inevitable this year. If anything, the hard data show that the housing market slump has already begun …
Our key calls for 2023 highlight major shifts in the outlook for real estate. We expect all-property total returns to be negative for the first time since 2009. At a sector level, we expect retail to do best, ending industrial’s decade of dominance, while …
6th January 2023
Although valuation premia in certain parts of the US stock market shrank significantly last year, we think there is still some room for this to continue in the coming decade and weigh on their relative performance. To re-cap, there was a marked reversal …
While we expect mortgage rates will fall to 5.75% by end-2023, affordability will remain stretched. Alongside a weakening economy and falling house prices that will weigh on housing market activity. Indeed, we think 2023 will be the worst year for sales …
The recent plunge in wholesale gas prices means that utility prices for households may fall below the government’s price freeze in July. As a result, CPI inflation will be around 0.3 percentage points (ppts) lower than we previously thought in the second …
Strong rental growth and higher mortgage costs will keep shelter inflation elevated for the next few months, but we expect it to fall sharply over the rest of 2023 as lower house prices feed through. Shelter inflation surprised to the upside of our …
5th January 2023
Models point to recession soon Our composite models continue to suggest that a recession this year is a near-certainty, with the implied odds of the economy being in recession in six months’ time and in one year’s time both above 90% as of December. …
While our forecast that the economy would slow in 2022 on the back of high inflation and Fed policy tightening was right, like every other forecaster we were surprised by its extent. This threw off our call for further property yield falls in 2022. But we …
4th January 2023
The latest JOLTS data suggest that labour market conditions remain quite tight and a lot more adjustment is needed to ensure that the drop back in price inflation to 2% will be sustained. While the job openings rate was unchanged at 6.4% in November, …
The nomination of a less dovish candidate to succeed BoJ Governor Kuroda would probably signal that Yield Curve Control will soon be abandoned, though we would still expect the Bank to keep its short-term policy rate at -0.1%. This would result in a …
