If enacted, President Joe Biden’s corporate tax reforms could become a significant drag on US equities and hit the earnings of technology, pharmaceuticals and biotech companies particularly hard. However, political wrangling could mean the changes …
9th April 2021
We estimate that households accumulated “excess” savings of around 4.4% of GDP last year. But they are unlikely to spend this cash any time soon, so it will probably not do much to boost the recovery. Data published today show that euro-zone households …
We expect higher government bond yields in the US than in other developed markets (DMs) to push the US dollar up, as has generally been the case since the Global Financial Crisis. Admittedly, the relationship between the government bond yield gap and the …
Few office or retail markets currently look economically viable for residential conversions. However, expected falls in values, particularly for retail, and acute housing shortages suggest that there is scope for conversions to increase in many markets. …
While Chile is currently battling with a severe wave of virus cases, we remain cautiously optimistic about the resilience of the economy in Q2, and the prospect of a vaccine-related boost to output over the second half of this year. As a result, we are …
8th April 2021
The road to recovery in South Africa’s manufacturing sector will probably be slow and bumpy. Weak domestic demand and persistent power cuts will act as key headwinds, although export-oriented sectors are likely to benefit from a continued rebound in …
While we have revised down our oil price forecast for Q2 and Q3 this year in response to the OPEC+ decision to ease production cuts, we still think a rebound in global demand will help push oil prices back above $70 per barrel. We expect weaker oil demand …
The account of March’s ECB meeting showed that the decision to increase asset purchases was agreed by all members, but that some were reluctant to do much more. In practice, purchases haven’t risen very far since then. Given that the Bank could have …
While Asian goods exports have fared better than those from the rest of the world and especially those from advanced economies over the past year, this performance gap should narrow as economies reopen. Global goods trade continued its strong recovery at …
In recent years, and particularly since the start of the pandemic, the pressure on central banks to address climate change has increased. This Update considers the potential implications for financial markets of some of the changes they have made until …
Turkey’s large external vulnerabilities mean that aggressive rate cuts by the central bank (CBRT) would run the risk of sharp and destabilising falls in the lira. A probable next step by policymakers would be a turn towards capital controls. But we doubt …
After declining in 2021, we think that favourable supply conditions and a rebound in consumer spending will support a recovery in Budapest retail rents into next year. And while the sharp increase in online shopping last year suggests a downside risk to …
The mooted $650bn allocation of IMF Special Drawing Rights (SDRs) that looks close to being signed off would provide welcome relief to some smaller frontier markets such as Ghana and Kenya that still face very high foreign borrowing costs. But it won’t …
7th April 2021
While investment in build-to-rent developments has been notably resilient over the past year, we continue to think that the growth of the sector will be slow for two reasons. First, high house prices relative to rents means that build-to-rent investors …
The recent decision by OPEC+ to increase its oil production quotas and the prospect of higher Iranian output point to a smaller global oil market deficit this year than we had previously envisaged. Nevertheless, the persistent deficit means that we still …
The MPC voted to keep the repo and reverse repo rates on hold today amid the surge in COVID-19 cases, and committed to keeping policy “accommodative to support and nurture the recovery”. Given this, we continue to think that markets are too hawkish in …
The comparative success that the Danish government has had in handling COVID has allowed it to start to re-open the economy, despite the painfully slow progress on the vaccine front. Most economies in Europe are not as well placed, however, so their …
6th April 2021
The unveiling of Vietnam’s new leadership team earlier this week contained no new surprises, and we are not expecting any significant changes in policy direction. The economy is well-placed to meet the 6.5%-7.0% growth target that was unveiled as part of …
Rapidly rising property prices have become a big political issue in Korea, but they don’t pose a significant threat to the economy. In February, property prices across Korea rose by 10% y/y – the fastest increase since 2007. Increases in Seoul, which is …
The Reserve Bank of Australia stuck to its dovish stance despite the strength in recent data so we reiterate our view that it will expand its bond purchase program by another $100bn in June. The Bank acknowledged the recent improvement in the global …
Markit’s EM manufacturing PMI dipped last month, but the survey still paints a pretty positive picture of the sector’s recovery across the emerging world – with Brazil a notable outlier. In the meantime, supply chain disruptions are causing price …
1st April 2021
The rise in March’s global manufacturing PMI suggested that world industrial production continued to recover. But the headline index masked a divergence at the country level, with sizeable gains in advanced economies offsetting small falls in major EMs. …
The broad consensus among Germany’s major parties means that September’s election will not lead to big macroeconomic policy changes. But with the Greens and/or SDP set to gain influence, fiscal policy could become marginally less conservative, and Germany …
Despite some conflicting messages from the official and unofficial PMI data out of China, both surveys continue to point to lower industrial metals prices. A pick-up in manufacturing activity and exports elsewhere in Asia should ensure that prices hold up …
Though retail warehouse rents saw their largest ever annual fall in 2020, this drop was not as deep as in other retail sub-sectors. Looking ahead, while a higher level of remote working than before the pandemic is likely to continue supporting out-of-town …
Travel restrictions will hold back cross-border capital flows until at least H2. And given that we expect extra-European capital to return particularly slowly, total investment is set to recover gradually in 2021. With travel restrictions tight for most …
The rise in new COVID-19 infections to a six-month high yesterday has predominantly been limited to one state. But there are signs that the virus is spreading rapidly to other parts of the country and, with the vaccine rollout proving slow-going, the …
Past experience suggests that, with inflation near a peak and the economy slowing (alongside pressure from President Erdogan for lower interest rates), Turkey’s central bank will push ahead and ease monetary conditions in the coming months . Last week we …
31st March 2021
The recent drop in the price of gold below $1,700/oz. has illustrated its greater sensitivity to US long- than short-dated real yields. Although the price has nudged back up above this level at the time of writing, we expect it to fall back to an even …
We suspect that President Joe Biden will struggle to garner bipartisan support for his $2trn in infrastructure spending, even if he was willing to placate centrist Senate Republicans by dropping his proposal to fully fund that investment by raising …
Inflation looks set to rise further in Germany than in most other euro-zone economies this year and we suspect that it will remain higher there after the pandemic is over. However, we doubt that this will stop the ECB from maintaining ultra-loose monetary …
The rapid re-opening of Israel’s economy since February has triggered a rebound in activity that looks stronger than had been widely anticipated. In particular, the recovery in hospitality and leisure spending has been faster than that which followed …
We’ve assumed households just go back to saving the same share of their income as they did before the crisis. That is enough to drive a rapid economic recovery. The upside risk is if households go further and spend some of their stock of savings. Indeed, …
The Fed’s asset purchases are fuelling a continued surge in the narrow money aggregates, but growth in both our M3 measure of broad money and bank lending remain on a downward trend. (See Chart 1.) The Fed’s balance sheet has continued to expand in step …
30th March 2021
Saudi Arabia’s tightening of COVID-19 restrictions has weighed on activity in the non-oil sector and the voluntary oil output cut has hit the hydrocarbon sector too. But, with the vaccine rollout accelerating and oil production likely to increase soon, …
Despite a more supportive outlook for property valuations, we think that weaker rental prospects will result in southern European property markets continuing to underperform into 2022. Last year we highlighted that southern European property would …
Unlike in some emerging markets, central banks across Emerging Asia are in no rush to tighten monetary policy. External factors won’t compel policymakers to tighten, and with inflationary pressures very weak, interest rates are likely to be kept low to …
Particularly weak recoveries lie in store for tourism-dependent emerging markets, including much of Africa, parts of the Middle East (e.g. Jordan), and South East Asia (e.g. Cambodia). A lacklustre rebound in tourism could add to balance of payments …
29th March 2021
In light of a raft of recent forecast changes, this Update presents the latest returns projections of our Asset Allocation service for the next couple of years. (See Chart 1.) We think six points are worth highlighting. First, we forecast that the returns …
26th March 2021
With office occupiers cutting space requirements, London office vacancy has climbed sharply. Our estimates suggest that vacancy is likely to rise even further over the next year or so and we have revised down our rental forecasts as a result. With tenants …
We have recently revised up our end-21 and end-22 projections for the US ten-year Treasury yield, which has prompted us to revise down our forecasts for emerging market (EM) assets and currencies. To recap, we had previously expected EM equities to rise …
The raft of EM central bank decisions over the last couple of weeks suggests that the door has largely closed on further rate cuts and that the balance will shift (slightly) towards hikes over the coming months. But this has more to do with domestic …
The unanimous decision by Banxico’s Board to keep its policy rate at 4.00% is a clear signal that its easing cycle is done and dusted. While this indicates a cautious shift at the central bank, we think that investors have gone too far in expecting that a …
The upheaval at Turkey’s central bank means that we now expect a 200bp interest rate cut next month followed by further aggressive easing in the second half of 2021. But the result is that inflation will stay high and the lira will fall much further, to …
The renminbi has gained 9% against the US dollar since last May. But the factors that underpinned this appreciation have faded. With US yields moving in the dollar’s favour and China’s economic outperformance set to diminish, we now expect the renminbi to …
We now expect that the US dollar will strengthen somewhat over the next couple of years as the US economy outperforms and its policy mix diverges from that in most other major economies. Last year, the US dollar went through two distinct phases. The …
Later this year, the European Commission is expected to provide draft details on how the EU will introduce and implement a carbon border adjustment mechanism (CBAM, often dubbed a ‘carbon border tax’) as part of its plan to tackle carbon leakage and …
Policymakers in South Africa kept their benchmark rate unchanged at 3.50% today, breaking a recent wave of EM central bank decisions to tighten policy. We suspect that the country’s weak economic recovery and subdued inflation means that policy will stay …
25th March 2021
Record low inventory, surging house prices and stretched affordability have pushed the share of households who think now is a good time to buy a home to the lowest since 2010. But, at the same time, the share who plan to buy a home in the next six months …
