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The Q2 ECB bank lending survey showed a tightening in credit standards for commercial property lending in the first half of the year, with expectations for a further squeeze in H2. With the cost of debt also higher, more restrictive credit will weigh on …
20th July 2022
Europe’s heightened demand for LNG will be enough to keep prices high this year and into 2023, particularly as LNG supply growth will be fairly limited . The Asia-based spot price for LNG, together with its European counterpart (TTF), soared in the wake …
18th July 2022
Despite the Q1 surge in investment activity, we think a weak rental outlook and stretched valuations will deter a sustained increase in investment, limiting the scope for further falls in prime industrial yields. There was strong investor demand for prime …
If the return of political instability in Italy leads to an early election, government bond spreads are likely to widen, whether or not the ECB agrees the details of the Transmission Protection Mechanism next week. The Five Star Movement has abstained …
14th July 2022
Structural changes to how we live, work and shop have supported retail warehouse rents over the last couple of years relative to other retail sub-sectors. We expect this outperformance will continue, although even here rental growth will slow as consumer …
13th July 2022
We doubt the fall in the euro will lead to a material increase in overseas investment this year. Rather, we think investor demand will be underpinned by the euro-zone’s economic and property fundamentals, for which the outlook has weakened sharply. The …
The euro hit parity against the US dollar today and we wouldn’t be surprised if it falls further. While we think it would take big moves in the trade-weighted exchange rate for the ECB to intervene in FX markets, at the margin the euro’s fall adds to the …
12th July 2022
The slowdown in the Swedish housing market has the potential to delay the recovery in the retail sector this year, as it weighs on retail sales and makes conversions to residential even less viable. This would add to what is already a weak outlook for the …
Capital outflows from EMs picked up over the past month and are likely to persist over the rest of the year. That’s a particular threat to those EMs whose current account deficits have widened or are widening sharply, including Turkey, Chile and parts of …
While the largest increases in corporate spreads in the US and the euro-zone may now be behind us, we suspect that a challenging economic backdrop will keep spreads elevated in both places for some time . The option-adjusted spreads (OAS) of ICE BofA ML’s …
8th July 2022
The rise in interest rates and bond yields has put property yields back under the microscope. Property valuations are now stretched and a traditional fair value analysis points toward a rise in property yields, which aligns with our view of a 40bps rise …
We suspect that the latest political turmoil in the UK adds to the reasons to expect a renewed rise in the 10-year Gilt yield, weakness in the pound, and continued trouble for the FTSE 100. The market reaction to the resignation of Boris Johnson as Prime …
7th July 2022
Very high inflation and low unemployment are driving German unions to seek big pay rises in this year’s collective negotiations. We think nominal pay growth will be in the region of 4-5% this year and 3-4% in 2023. Although this would result in …
Our updated yield model points to a quicker rise in property yields than our forecast suggests. While we still expect the correction to be mild, not least because of the lower share of property debt this cycle, this poses a downside risk to capital values …
It seems most likely that Italy will be able to put its public debt ratio on a gradual downward trajectory, even as interest rates rise, by running primary budget surpluses. But if 10-year government bond yields rise above 5% and stay there, the necessary …
5th July 2022
The Bank of Israel (BoI) stepped up the pace of tightening today with a 50bp interest rate hike, to 1.25%, as it dropped its commitment to “gradual” interest rate hikes. This suggests that similar moves may be in the pipeline and supports our hawkish view …
4th July 2022
If Russia decided to end all exports of natural gas to Japan, we suspect that Japan’s GDP would fall by around 0.5%. However, the hit could be larger as there is now less scope to reduce energy usage than after the Great East Japan Earthquake and a bigger …
The S&P Global EM manufacturing PMI hit its highest level in over a year last month, but that was almost entirely driven by a recovery in China. The surveys softened across most of the rest of the emerging world, with external demand a key area of …
1st July 2022
After a solid start to the year, investment activity showed signs of cooling during the second quarter. We think that stretched valuations, an increasingly negative financing gap and economic uncertainty are set to weigh on investment activity over the …
30th June 2022
Ukrainian refugees have boosted labour forces and consumer spending across Central and Eastern Europe (CEE) since the outbreak of the war, but this could prove short-lived if the conflict remains concentrated in Eastern Ukraine and more refugees return …
As expected, this morning’s 50bp interest rate hike by the Riksbank, to +0.75% saw it join the ranks of the “50bp club”. But while policymakers resisted the urge to join “Club Fed” with a 75bp hike today, they indicated that they will front-load the pace …
Wage growth is a possible source of the “more persistent inflationary pressures” that the Bank of England has said would prompt it to act “forcefully” when raising interest rates. This Update highlights where to look for the early signs of either a …
29th June 2022
High inflation in the euro-zone isn’t all down to energy prices and global demand-supply imbalances. Domestic price pressures are also very strong, bolstering the case for tighter monetary policy. Amid the external shocks hitting the euro-zone, the …
28th June 2022
The G7 proposal to impose a cap on the price of Russian oil and gas would introduce new supply-side risks by potentially disrupting Russian energy supplies. This could push global energy prices up further, but for now we still see Brent crude prices …
Aggregate EM food inflation has risen to its highest rate since 2008 and, while it should fall back in 2023, it’s likely to stay extremely high for at least the next four-to-six months. That will keep consumer spending under pressure and provide another …
Hungary’s central bank (MNB) stepped up the pace of tightening today with a much larger-than-expected 185bp increase in its base rate, to 7.75%, and the hawkish communications underline the view that further large rate hikes are likely to be delivered …
After reaching a record-high in June, we think that inflation in builders’ costs will soon start to ease. But even as cost pressures subside, construction volumes will slump as the housing market slows. Construction volumes strengthened in the first half …
Recent developments have further increased the chance that there is a complete end to Russian exports of gas to Germany. If this occurred, it would lead to a substantial fall in manufacturing output and make a recession – which we already think is likely …
We doubt that aggressive policy tightening by developed market (DM) central banks will be followed by a series of financial crises in major emerging market (EM) economies in the way that it has at times in the past. Even so, we still suspect that global …
27th June 2022
Russia’s government has now reportedly defaulted on its foreign-currency denominated debt for the first time since 1918, but this is a largely symbolic event that is unlikely to have an additional macroeconomic impact. Sanctions have already done the …
Measures of housing market activity and prices tend to follow a predictable sequence in downturns. In this Update we highlight the key US and UK variables that clients should follow to track the housing downturn and identify turning points. With most …
24th June 2022
Student enrolment remained robust during the last couple of years and is likely to continue growing strongly over the next decade. But supply of purpose-built beds has grown less rapidly and the pipeline points to a continued lag against demand. This …
A handful of EM central banks have ramped up FX sales to provide support to weakening currencies over the past couple of months. And with inflation high and the US dollar likely to strengthen further, others could follow suit. FX intervention is unlikely …
High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, …
23rd June 2022
This morning’s decision by the Norges Bank to raise its key policy rate by 50bps, to 1.25%, was in line with our non-consensus forecast. Also, as we predicted, the Bank all but confirmed that it will break with tradition and raise rates at the “interim” …
By cutting GDP growth by about 0.3-0.4 percentage points (ppts) in Q2 and raising GDP growth by a similar amount in Q3, the impact of the extra bank holiday to mark the Queen’s Platinum Jubilee will all come out in the wash in the end. But it will add …
21st June 2022
We suspect that the main reason for the hasty withdrawal of the Financial Policy Committee’s mortgage affordability test is that it was on course to become a severe constraint on many buyers’ financial firepower. If left in place, it could have led to a …
20th June 2022
Central and Eastern European economies are experiencing their worst bout of inflation since the late-1990s as surging food and energy prices have added to strong core price pressures across a broad range of goods and services. Monetary tightening cycles …
French President Emmanuel Macron faces five difficult years after losing his absolute majority in parliament. Proposed reforms, including to pensions and benefits, will be diluted if they happen at all, and the result suggests that the “extreme” parties …
The best way for the ECB to contain peripheral bond spreads would be via a new programme of unlimited, flexible bond purchases. This may be what happens eventually, but we suspect it will take longer than many anticipate to agree, meaning there is plenty …
17th June 2022
After a more severe downturn in 2020, Manchester office rental growth has caught up with other regional cities in recent quarters. While employment growth and occupier activity may remain fairly weak, tight new supply dynamics should see Manchester office …
The appointment of Erik Thedéen as the new Governor of the Riksbank will only strengthen the relationship between the Bank and the financial regulator, and could result in more macroprudential powers being brought under the oversight of the Bank. It was …
Despite consumer confidence remaining extremely low, we now think household spending in the euro-zone will edge up in Q2. Excess savings and a tight labour market have helped to cushion the blow from higher prices and enabled households to release their …
Russia’s decision to once again cut supplies to Europe makes the region’s gas supply look increasingly precarious. The move will slow regional stock builds and keep prices historically high . Russia’s monopoly gas exporter, Gazprom, announced on Wednesday …
16th June 2022
Strong demand for labour, not a lack of potential workers, has driven the euro-zone’s unemployment rate to a record low. Employment gains have been biggest in public services and we expect demand for labour to hold up even as economic activity softens …
Shortages of food supplies and surging prices have led some EMs to impose export restrictions on key agricultural products, a trend that threatens to become more prevalent and serve to keep prices elevated and inflation high. Some EMs are also attempting …
By raising interest rates by 25bps (basis points) today, from 1.00% to 1.25%, rather than by 50bps or the 75bps the Fed announced last night, we think the Bank of England is putting too much weight on the softening economy and not enough on surging …
After the excitement of yesterday’s ECB emergency meeting and 75bp hike by the US Fed, the SNB kept its end up by unexpectedly raising its policy rate by 50bps this morning – its first rate rise since 2007. Given its history of unscheduled announcements, …
The recent falls in the Turkish lira have led to increased speculation that, with the CBRT showing no sign of willingness to raise interest rates, policymakers will be forced to turn to capital controls to prevent sharp and disorderly moves in the …
The Turkish lira is once again depreciating sharply against the US dollar and we expect this to continue. We revise our forecasts for the lira and pencil in further substantial weakness by the end of 2022, to 24/$. The lira has plunged ~15% or so against …
15th June 2022
