While the stock market fared much better than the economy in the US overall during the past ten years, we do not expect that to remain the case. A country’s stock market and its economy will grow at the same rate if there are no changes in the ratios of …
17th March 2021
A new wave of coronavirus cases in Europe, and the pause in usage of the AstraZeneca vaccine, raises the risk that the EU will fall even further behind the UK and US in its recovery from the pandemic. Europe is falling behind in the race between …
Our analysis suggests that both higher asking rents and a greater proportion of information jobs have been associated with a larger rise in sublease vacancy in recent quarters. We think there are good reasons for this and expect these factors to be key to …
The renewed surge in virus cases and tightening of restrictions across Central Europe will deal a heavy blow to the recovery in the first half of this year. Meanwhile, slow vaccine rollouts mean that the ‘vaccine bounce’ that we had anticipated from Q2 …
The recent pick-up in consumer spending in DMs has been characterised by a sharp rise in spending on goods. The next leg of the recovery will be focused on services as restrictions are removed. Spending on consumer goods is likely to slow, implying weaker …
We had expected Brazil’s stock market to be among the best performers in the world this year, but with the virus still running rampant and populist policymaking on the rise, we now think its underperformance will continue for some time. In general, we …
South Africa’s hard activity data for January show that virus-related restrictions meant that the economy started the year on a very weak footing. We think that the recovery will struggle to gain much momentum over the coming months. Activity data …
News on a potential breakthrough in the supply of nickel matte from Tsingshan has dampened nickel prices. Rather than a step-change in nickel market supply, we reckon that this development will simply act as a structural drag on the nickel price . After …
Housing finance commitments have surged in recent months pointing to a rise in credit growth before long. But we don’t think lending standards have been eroded so this shouldn’t stop the RBA from announcing an extension to its QE again in June. Household …
Agricultural prices are currently trading near multi-year highs, but we doubt that a supercycle is underway or will occur anytime soon. Instead, we think that agricultural prices will fall over both the short and longer term as demand growth wanes and …
16th March 2021
Extensions to many emergency support measures in the Budget, combined with the lockdown easing roadmap, leaves us with a clearer steer on the impact of the eventual withdrawal of government support. As the economy follows the route out of lockdown, it …
Despite the recent turmoil in bond markets, we continue to expect developed market (DM) equities to gain ground in the rest of this year as real yields remain quite low and economic growth stays strong . DM equities have held up well recently, despite …
We argued some time ago that globalisation had peaked and a period of deglobalisation might even lie ahead. It is now becoming clearer what to expect – namely a type of regionalism driven by the emergence of separate US-led and China-led spheres. While …
The narrowing in India’s goods trade deficit in February is likely to soon reverse as the recovery in domestic demand and oil prices pushes up imports. But while this means that India’s recent current account surplus is unlikely to last for long, the …
Portfolio outflows from several EMs have intensified over recent weeks as fears over a re-run of the “Taper Tantrum” appear to be playing on investors’ minds. But outflows are currently much smaller than they were in 2013 and, even if there were a …
15th March 2021
Turkey’s central bank (CBRT) looks set to hike interest rates further this week, and the experience from other EMs suggests that it will need to keep real interest rates elevated for several years to bring inflation down on a sustained basis. Lowering …
Brexit was not the only reason why exports and imports in January were so weak. COVID-19 and statistical breaks are also to blame. And it appears that a good chunk of these effects faded in February. The 18.3% m/m and 22.8% m/m respective falls in exports …
12th March 2021
We think that high FX-hedged yields on 10-year US Treasuries will encourage more purchases from non-US investors and may help to limit the rise in US government bond yields even as the economy recovers. Since the start of the year, the prospects for the …
With fewer spending options during the lockdown, the share of cash-out refinances is much lower than usual given the recent surge in house prices. And, while the volume of cash extracted has reached a 13-year high, most borrowers look to be spending that …
The recent technical adjustments to the Danish Nationalbank’s monetary toolkit simplify the policy framework and are not intended to alter the policy stance. But with the Danish krone at its strongest level against the euro since September 2017, and at a …
With infections rising and restrictions being tightened, we expect Italy’s economy to do little more than stagnate in the first half of the year. Activity in the retail and hospitality sectors will contract again, but that should be at least partly offset …
The deeper-than-expected production cuts by most OPEC+ member states and a revival in global demand means that the oil market is now likely to be in a bigger deficit than we had previously envisaged for much of this year. We now expect the price of Brent …
Although we do not expect US bond yields to keep on climbing sharply, we nonetheless think that the recent “rotation” in the US stock market has further to run, given the upbeat prospects for the economy. As we have discussed previously (see here & here …
The ECB’s statement that it expects the pace of its PEPP purchases to be “significantly higher” in the coming quarter suggests that it will, at a minimum, resist further upward pressure on bond yields and is consistent with our forecast that sovereign …
11th March 2021
The Colombian government’s shift away from its austere fiscal stance will lead to higher public debt and, more likely than not, a loss of its sovereign investment grade rating. But, from an economic perspective, this is probably a price worth paying to …
Recent currency falls and rises in inflation have all but guaranteed interest rate hikes in Turkey and Brazil next week, and Russia’s central bank is likely to lay the groundwork for tightening too. More broadly however, low inflation and still-large …
Just as we expect China’s economy to slow later this year even as growth picks up rapidly elsewhere, we think China’s financial markets could stand out from those in the rest of the world in the coming months. This year we forecast a significant contrast …
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 …
Tighter virus containment measures imposed in late-2020 in South Africa weighed on manufacturing and mining output in January. We think that industrial activity picked up more recently, but the recovery will be held back by power cuts, a slow vaccine …
The euro-zone’s labour market has held up much better than anybody had anticipated over the past year. But the amount of slack in the market is still greater than it was before the pandemic hit. Accordingly, wage growth is likely to remain subdued even as …
In last week’s Budget speech, the Chancellor referred to the lower “underlying” measure of government net debt rather than the higher “headline” measure. You’d be forgiven for thinking he did that just to put the spotlight on the lower measure. But the …
10th March 2021
January’s slump in auto production looks likely to be sustained throughout the first quarter and to knock around 0.5% points from German GDP. However, the impact on the euro-zone aggregate will be much smaller, and at least some of Germany’s output should …
On the back of deeply negative office absorption last year and the continued flow of announcements from firms cutting their office space, we have made major revisions to our demand forecasts across our five-year horizon. The total drop in occupied space …
While we are revising down our forecast, we don’t expect the price of gold to fall that much further this year. In our view, the recent decline in investment demand is unlikely to continue for long. What’s more, we think the ongoing recovery in physical …
The Bank of Canada adopted a more upbeat tone in its latest policy statement but, given the slow vaccination program and the Bank’s concerns about the labour market, we doubt this is a signal that it will be reducing the pace of its asset purchase at the …
One silver lining of the pandemic may be to accelerate the transformation to a “green” global economy. The related investment could boost demand, and possibly potential growth, in those countries introducing green stimulus measures. But it seems unlikely …
The disruption to auto production caused by semiconductor shortages is yet another reason (alongside tight COVID-19 restrictions) to expect growth in Central and Eastern Europe (CEE) to struggle in H1 2021 . Since late 2020, global shortages of …
Despite the lockdown, a recent pick-up in footfall suggests that people are returning to the capital, which, if it continues as non-essential stores re-open, would be welcome news for London’s hard-hit retailers. But we think a slow return of office …
Too much inflation can spell trouble for equities if it results in tighter real monetary policy or slower growth. But while we expect inflation to pick up in the US, we do not expect either of those outcomes anytime soon. That is a key reason why we …
Dutch GDP fell much less than the euro-zone average last year and, even though the economy is unlikely to avoid contraction in Q1, we think it will regain its pre-crisis level sooner than any other major euro-zone economy. Next week’s election should not …
Industrial metals prices have soared recently to multi-year highs. But we think the rally is unsustainable. In fact, it cements our view that slowing growth in China will drag prices lower by end-2021 . After rebounding from their virus-induced lows early …
The rise in US Treasury yields poses a risk for those EMs with large external financing needs such as Turkey as well as some smaller frontier markets, and could force central banks in these countries to tighten monetary policy. The accompanying rise in EM …
Even as Sub-Saharan Africa gradually opens its doors to visitors, tourism sectors in the region face serious hurdles and we think that African economies dependent on the industry may be one of the slowest to recover from the coronavirus crisis. Tourism …
A series of strong inflation readings in Russia have put the central bank’s ability to meet its inflation target over the next year under threat and brought forward the prospect of monetary tightening. We think the central bank will use its meeting on 19 …
Japan’s manufacturers are not suffering from the severe supply shortages that are plaguing firms in other advanced economies. This reflects lessons learned from the Great East Japan Earthquake and a low reliance on imported components. Indeed, the surge …
Today’s dovish speech by RBA Governor Lowe supports our view that the RBA is set to keep monetary policy accommodative for a long time to come. But concerns about the functioning of the bond market may force the RBA to stop QE by the end of the year. …
While labour market conditions are probably not quite as strong as the Labour Force Survey (LFS) measure of employment suggests, they do not seem to be as weak as the Survey of Payrolls, Employment and Hours (SEPH) implies either. Ultimately, with the …
9th March 2021
Financial market-based measures of inflation expectations have returned to pre-pandemic levels, but consumers’ and firms’ expectations are generally more subdued, and the increase in industrial firms’ expectations seems to be due to short-term supply …
We think that the recent outperformance of the MSCI Japan Index relative to the MSCI USA Index will continue as the world slowly gets back to normal. After lagging for most of 2020, the MSCI Japan Index has been one of the best-performing developed market …
The global semiconductor shortage appears to be largely the result of a strong revival in demand for goods including consumer electronics rather than pandemic-related supply disruptions. It should generally have limited implications for GDP, but it could …
