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The Riksbank stuck firmly to “Plan A” this morning by maintaining the status quo for the repo rate and its asset purchase programme. However, the slight tweak to the Bank’s language on the outlook for the balance sheet lends support to our view that …
21st September 2021
The low use of gas, and a reliance on nuclear and renewables for electricity generation, means that Switzerland and the Nordics are less exposed to the recent surge in gas prices than other parts of Europe – particularly Spain. While Switzerland and the …
20th September 2021
The upward pressure on euro-zone headline inflation from the surge in natural gas prices will not be felt evenly throughout the region, with Spain looking most vulnerable. Governments are stepping in to cushion the blow, but higher energy bills are a …
While we expect the yields of long-dated sovereign bonds to increase further across developed markets over the next two years, we think they will rise by more in the US than in the euro-zone and the UK. This is based on our view that inflation will prove …
17th September 2021
Despite the fall in oil prices that we expect over the coming years, we forecast the MSCI Emerging Markets (EM) EMEA Index to make further gains and continue to outperform the broader MSCI EM Index. The recent strong performance of equities in EMEA adds …
One feature of the COVID-19 era has been persistent non-payment of rents, particularly in the retail and leisure sectors. But we don’t think this will come to a head next year once the eviction ban lifts, as by then the economy should be in better shape …
Given the recent surge in wholesale gas and electricity prices to record highs, it looks likely that Ofgem will opt for another chunky hike to the price cap on households’ utility bills next April. While this will hit household real incomes, it doesn’t …
The end of the stamp duty holiday may do little to dampen demand and homes for sale are in short supply. The upshot is that house price growth will remain strong into next year, so we have revised up our forecast for house price growth in 2022 from 3% to …
16th September 2021
The most recent commercial property data have been surprisingly upbeat and have raised the possibility that the recovery could be stronger than expected. But we think investors may have run ahead of themselves and this trend is unlikely to be sustained …
A deeper dive into the CPI figures supports our initial analysis that the bulk of the jump in inflation from 2.0% in July to 3.2% in August is due to base effects linked to falling consumer prices in August last year rather than a widespread and …
15th September 2021
A victory for United Russia in the Duma elections this week will strengthen the government’s recent focus on state intervention in the economy. Social redistribution has become a key priority for the government and large businesses may end up paying for …
This Update compares the valuations of the twelve different “risky” asset classes that we cover on our Asset Allocation service, both relative to one another and to the yields of “safe” assets, as well as explaining how those valuations inform our …
13th September 2021
The recent surge in the prices of natural gas and coal, and therefore electricity too, has boosted energy inflation and suggests the risks to our near-term forecast for headline inflation lie to the upside. But the effects of this will start to fade next …
Our financial conditions indices show that conditions remain loose by historic standards in most EMs. The key exception is Latin America, where conditions have tightened sharply this year due to rising interest rates and fiscal risks. This could pose a …
Russia’s central bank (CBR) slowed down its monetary tightening cycle with a 25bp interest rate hike, to 6.75% at today’s meeting and the accompanying communications suggest that there may be just one more 25bp rate hike, to 7.00%, in this cycle. The …
10th September 2021
Coal and natural gas prices have soared around the world on the back of unseasonable weather and disruptions to supply. And even if the weather normalises and supply rebounds soon, we expect prices to remain high at least into the start of 2022 as stocks …
The ECB today confirmed that it will slow its asset purchases slightly but this is a long way from a “full taper”. We think inflation will drop even further than the ECB expects over the medium term and expect the Bank to continue with asset purchases of …
9th September 2021
We estimate that households in Poland, Czechia and Hungary have accumulated “excess” savings worth 4% of GDP so far during the pandemic and this stockpile looks set to grow further in the coming quarters. We don’t expect these excess savings to be spent, …
8th September 2021
The fact that the Swedish GDP indicator was nearly 2% above its pre-virus level in July puts a question mark over the wisdom of the Riksbank’s plan to exhaust its asset purchase envelope by end-2021. We think there is a rising chance that policymakers …
With more hybrid working post-pandemic, the view is that office rents will be under pressure for many years. This raises questions about which locations could be more resilient and if rents in central business districts (CBDs) will perform better than …
The shortage of heavy goods vehicle (HGV) drivers in the euro-zone appears to be nowhere near as acute as in the UK. We therefore don’t expect to see a surge in drivers’ wages that would lead to widespread upward pressure on pay throughout the euro-zone …
7th September 2021
The net effect of today’s announcements on social care reform may provide a very small boost to GDP. But perhaps more important is that by funding more spending on social care by raising taxes, the government has some room to increase spending further, …
Weak near-term rental prospects and squeezed valuations mean that we expect Swiss office returns to perform poorly in the coming years, particularly in Zurich. Swiss office values have been more resilient to the pandemic than we had first expected. Having …
6th September 2021
Reports that shortages of heavy good vehicles (HGV) drivers have become more acute and have raised drivers’ pay will do little to ease fears that higher wage growth could persistently lift CPI inflation next year. But unless labour shortages spread to …
3rd September 2021
We think that the prospects for monetary tightening point to an appreciation of the Swedish krona relative to the UK pound over the next 6-18 months. This year, sterling has been one of only two G10 currencies to strengthen against the US dollar, while …
2nd September 2021
While the furlough scheme was critical in preventing the COVID-19 recession from dragging down house prices, we don’t think that the withdrawal of the scheme poses much of a risk. Meanwhile, the latest data show the end of the repossessions ban and …
The recent fall in aggregate new daily Covid cases in the euro-zone, largely due to the success of the vaccination programme, means that governments in the region should be able to avoid re-imposing significant new restrictions in the coming months. After …
Data released today confirmed that the Italian economy grew strongly in Q2, supporting our above-consensus forecast for the year as a whole. Timelier data suggest that concerns about the Delta variant have not crimped the services recovery, but supply …
31st August 2021
We expect a recovery in domestic and foreign spending along with online penetration rates below most other euro-zone markets to support moderate growth in Spanish prime retail rents over the 2022-25 period, though this is not enough to reverse the decline …
The account of the ECB’s July meeting confirms that a minority of Governing Council members objected to the dovish shift in the Bank’s interest rate guidance. Partly because of this, we now think the Bank is more likely to take until December to agree …
26th August 2021
Year-on-year money and lending growth has fallen sharply this year and we think it will decline further. With the subdued level of economic activity also weighing on consumer prices, we don’t think that money growth poses a significant upside risk to …
Business surveys suggest that global supply problems are becoming a drag on euro-zone investment, but these problems should fade going into 2022. As long as the Delta variant doesn’t halt the economic recovery in its tracks, investment should make a …
25th August 2021
Intermediate goods shortages and pandemic-related supply constraints across Central and Eastern Europe (CEE) are not going to disappear overnight and may hold back the pace of recovery in certain sectors. But they should eventually ease and we remain …
Data published today show that the weakness in German GDP in Q2 was due to the low level of household spending. Consumption should increase sharply in Q3. But with manufacturers struggling, the economy will probably not regain its pre-pandemic size until …
24th August 2021
Hungary’s central bank (MNB) raised its base rate by another 30bp, to 1.50%, as expected today but also dropped its commitment to raise interest rates on a monthly basis which suggests that the tightening cycle will probably slow after September’s …
After a sharp rise in support for the SDP the election result looks set to be very close. Whatever the outcome, economic policy will not change very much, but fiscal policy may be slightly less conservative, and Germany may be more open to European …
Israel’s central bank (BoI) sounded more cautious about the outlook at today’s MPC meeting given the rise in virus cases and tightening of containment measures. Provided the third booster jab is effective and restrictions are not tightened significantly, …
23rd August 2021
The past month has seen a growing divergence in COVID-19 outbreaks across the region, with cases still very low in Central Europe but surging in Israel and Turkey. Either way, it appears that restrictions will remain light touch and economic recoveries …
Net capital out flows from major emerging markets have picked up sharply over the past couple of weeks, driven by virus concerns, growing expectations that the Fed will begin tapering asset purchases this year as well as falls in commodity prices. But …
20th August 2021
Market-based measures of inflation expectations have risen during the past few months, but they are still consistent with our view that inflation will remain well below target over the medium term. And while firms expect to raise prices in the near …
19th August 2021
This morning’s decision by the Norges Bank to leave its policy rate on hold at a record low of zero was no surprise. Following the delay to the tightening cycle in New Zealand, the Norges Bank is back in pole position to be the first G10 central bank to …
The spread of the highly transmissible Delta variant has driven a sharp rise in virus cases, hospitalisations and deaths in Israel this month. Evidence of waning vaccine efficacy prompted the government to roll out third booster jabs at the start of …
18th August 2021
New plans have extended Permitted Development Rights (PDRs) on commercial property, allowing swifter conversion to residential use. These have been cautiously welcomed, but, in our view, they do not radically shift the outlook for either residential or …
Five years ago this October, we published a piece arguing that the “golden age” for emerging markets had ended and that they were entering a period of permanently weaker growth. Since then, many of the structural problems that we anticipated have begun to …
While the Monetary Policy Committee (MPC) became more hawkish at its August meeting, an increase in interest rates on the scale it expects would not undermine house prices. But more stubborn inflation than anticipated and a hike in Bank Rate to 1.5% by …
16th August 2021
We expect prime retail rents in both Lyon and Paris to struggle to make up lost ground this year, and even after a return to growth next year, the pace of increases will be subdued. After falling by 15% y/y last year, prime retail rents in Paris edged …
Turkey’s central bank (CBRT) left interest rates on hold at 19.00% today and, with inflation likely to remain elevated over the coming months and the economy having bounced back quickly from May’s lockdown, an easing cycle is unlikely to commence until …
12th August 2021
Following larger-than-expected falls in Q2 and positive near-term developments, we expect prime office and industrial yields to end the year lower than previously forecast. However, we think prime retail yields will trend upwards again as the impact of …
11th August 2021
The strength of mortgage and unsecured consumer lending in Russia has concerned the central bank and raises the threat of a build-up of financial vulnerabilities, but for now we think these risks are low. Since we last looked at Russia’s mortgage boom in …
9th August 2021
The latest data show pipeline price pressures continuing to mount in the euro-zone, pointing on the face of it to much higher consumer price inflation. But while there is arguably scope for a small rise in core goods inflation, subdued wage growth will …
