We estimate a backlog of around 850,000 foreclosures will have built-up if the ban is extended until the end of September, similar to the peak seen during the financial crisis. However, not all those foreclosures will be processed in the final quarter of …
27th January 2021
We think that the recent rally in emerging market (EM) Asian equities outside of China will slow substantially this year, and that they will begin to underperform other EM equities. To recap, a key feature of global equity markets since November’s vaccine …
New restrictions on travel will disrupt Lunar New Year plans for many families in China but they should also reduce the disruption to manufacturing and construction that normally causes output to slump in the first quarter of the year. The new government …
The rebound in market-based inflation compensation measures will not alarm the Fed since expectations are still relatively muted. Instead, Fed officials are more likely to view the rise as a welcome vindication of the tweaks they made to the policy …
26th January 2021
The recent rise in inflation appears to have stayed the hand of Nigeria’s central bank from delivering more monetary easing at today’s MPC meeting. But, as price pressures drop back towards the end of this year, we think that policymakers will lower the …
While we have revised up our end-2021 forecasts for the Australian dollar and the New Zealand dollar against the US dollar to reflect the strength of their recent rallies, we still think that the Kiwi will outperform the Aussie over the next couple of …
25th January 2021
Although much of 2020’s fall in Norwegian government bond yields has been reversed, we think that improving economic activity and supportive valuations will allow prime office yields to reach new historic lows this year. Despite the hit to economic …
Our base case remains that the RBA will end quantitative easing in April. However, one risk to that forecast is the rising share of long-term unemployment. According to estimates by both the RBA and the OECD, the natural rate of unemployment rose after …
The relative valuation of the US stock and corporate bond markets is another piece of evidence against the idea that equities in general are currently in a bubble. Their relative valuation today contrasts with the situation before collapses in the stock …
22nd January 2021
Leisure and hospitality re-openings were behind the strongest job growth in the Autumn, although national data for December suggest that this could be reversed on the back of renewed lockdowns. With the sector still well short of previous peaks, we think …
The flash PMIs for January suggest that the US economy shrugged off containment measures at the start of 2021, but that restrictions did indeed weigh on activity elsewhere in DMs. The surveys also provide some evidence that supply shortages are exerting …
The number of new Covid-19 cases is surging once again in Spain and, with tougher measures looking inevitable, this will weigh heavily on economic activity in Q1. Things should improve later in the year (perhaps dramatically), but only if the vaccination …
While the yield of ten-year Italian government bonds has risen recently, we continue to expect it to fall back by end-2021 thanks to ECB support and a benign domestic and global backdrop . To recap, there appear to be three main reasons behind the ~20bp …
While yesterday’s ECB policy statement and press conference left many investors with the impression the Bank may be willing to tolerate higher peripheral bond yields, we doubt that this is the case. Either through words or action, the Bank is likely to …
The possible sharp fall in the population since the start of the pandemic may explain up to 1.8 percentage points of the underperformance of the UK economy last year relative to its peers and, more worryingly, may present a downside risk to our forecast …
21st January 2021
With risk-free interest rates not set to drop any further, and home sales constrained by record low inventory, the cost of the prepayment option on MBS will have fallen. Alongside Fed purchases of MBS, that helps explain the recent narrowing in the spread …
As expected, the ECB left its policy settings unchanged today and, given the flexibility of its current policy of implicit yield curve control, will probably make no changes until the second half of the year. However, we suspect that the Bank will allow …
The main risks to the outlook for emerging markets this year relate to virus developments and vaccine rollout. (See here and here .) The more traditional macro risks are smaller, but one going under the radar in a few large EMs is that fiscal support …
Policymakers in South Africa looked through the recent virus-related deterioration in economic conditions and kept the policy rate unchanged, at 3.50%, today. As the recovery struggles to gain momentum, monetary conditions will probably stay loose for …
Turkey’s central bank left its benchmark one-week repo rate unchanged at 17.00% at today’s MPC meeting as concerns about the faltering economic recovery took priority. But the hawkish tone on inflation supports our view that rates will be unchanged …
As expected, the Norges Bank left its policy rate on hold at a record low of zero once again this morning and reiterated that it “will most likely remain at today’s level for some time ahead”. This supports our view that, while we expect Norway to be …
Bank Indonesia (BI) today left its main policy rate unchanged at 3.75%, but we doubt this marks the end of the central bank’s easing cycle. With the economic recovery struggling, inflation below target and the currency holding up well against the US …
The Brazilian central bank’s decision to remove its forward guidance at last night’s meeting indicates that Copom is preparing the ground to raise interest rates. But we doubt that policymakers will deliver the aggressive tightening cycle that most …
Despite the softness in occupier activity, prime office rents in the French capital grew at a healthy pace in 2020. And with the labour market set to recover in the second half of this year and a tight supply picture, we think that Paris rental growth has …
Despite the headwind from the third virus wave, the Bank of Japan revised up its growth forecasts for the next couple of fiscal years. And while Governor Kuroda didn’t provide much insight into what to expect from the upcoming review due in March, we …
The main change to the Bank of Canada’s policy statement today was a signal that the pace of its bond purchases will be reduced as the Governing Council gains confidence in the strength of the recovery. As well as keeping the policy rate at 0.25% and …
20th January 2021
The rollout of COVID-19 vaccines has slowly picked up across the region and we think governments will ease most restrictions by the middle of this year. But there is a clear risk that vaccine rollout progresses more slowly and that the bar for easing …
The surge in narrow money growth is entirely due to regulatory changes and a substitution out of savings accounts due to low interest rates. (See Chart 1.) Our measure of M3 shows broad money growth has slowed, dampening fears that a surge in money will …
Brazil was Latin America’s economic outperformer last year, but the outlook for this year is increasingly challenging and we expect that the economy will fall behind its regional peers in the coming quarters. We now think that GDP will expand by 3.0% over …
Bank Negara Malaysia (BNM) left its main policy rate on hold at 1.75% today, but with the country once again in lockdown following a surge in COVID-19 cases, we think that the Bank will eventually be forced into action. Of the 23 analysts polled by …
In this Update we take a look at the important elections and political events that are set to take place across Asia over the coming year as well as any potential flashpoints, assessing the implications for policymaking and economic growth. Later this …
Commercial banks left the Loan Prime Rate (LPR) on hold today. But with monetary conditions already being tightened in practice and underlying inflation set to rebound, we think it is still likely that the PBOC opts to formally hike rates later this year. …
Saudi Arabia’s economic struggled at the end of last year and a combination of a slow start to the vaccination programme, voluntary oil output cuts and tight fiscal policy means that the outlook for the first half of this year is pretty bleak. Final GDP …
19th January 2021
Although several factors could conceivably support the dollar in the near term, we still think it will weaken overall this year as Fed policy remains accommodative and appetite for risk continues to grow. The first factor that could potentially drive the …
The speed at which vaccines can be rolled out will be a key determinant of economic performance this year, and this is likely to differ widely across EMs. This Update sets out a provisional framework for thinking about this process and when it will allow …
The surge in global shipping costs over the past six months is likely to be short-lived and several factors will dampen the full pass-through to consumer prices. Even so, it adds to a growing list of developments that point to a rise in inflation over the …
The detailed breakdown of China’s Q4 GDP data published today shows that the services sector, which had been lagging construction and industry, has returned to its pre-virus growth path, with all types of services activity now expanding in year-on-year …
Our COVID Mobility Trackers indicate that activity weakened towards the end of Q4, and data up to mid-January suggest that it took another leg down at the start of 2021. With countries still in the early stages of their vaccination rollouts, we are …
18th January 2021
The rise in oil prices this year is likely to prove insufficient to remove strains in African oil producers’ balance sheets. Currencies in Nigeria and Angola will have to weaken further, and policymakers may turn to more desperate or draconian measures to …
Completions of new homes have made a full recovery from their collapse in Q2 2020, but builders appear more hesitant to start new projects. Given we expect the housing market to endure a rough patch later this year, that is unlikely to change anytime …
Although rental growth prospects for prime property are weak compared to recent years, the outlook is better than for secondary property. As such, we think that investors will continue to focus on prime assets this year, allowing prime office and …
The widening in India’s goods trade deficit to an 18-month high in December still has further to run, particularly as a recovery in both domestic demand and global oil prices pushes import values higher. That would be enough to tip India’s recent current …
We think that the surge in many agricultural commodity prices is somewhat overdone. Although ending stocks for the major grains and soybeans will be lower in the year ahead, they will still be relatively high by historical standards, which is why we …
15th January 2021
High-frequency data show that the surge in net inflows to EM bond and equity markets seen last month is now easing, but inflows remain strong. We think that will remain the case as global risk appetite continues to improve. The data provide signs that the …
Although Treasury inflation compensation – i.e. gaps between the nominal yields of conventional Treasuries and the real yields of TIPS with comparable maturities – has risen sharply since the spring, we don’t think this will prompt less accommodative …
Advanced economy headline inflation rates are set to jump by an average of nearly 2%-pts in the coming months as energy inflation picks up and, in some cases, the effects of last year’s temporary cuts in VAT cuts go into reverse. But with core inflation …
While we doubt that the US stock market’s current valuation will prevent it from making further gains, the fact that valuations are much lower in other parts of the world suggests to us that equities there could outperform over the coming years. Much …
The Bank of Korea (BoK) left its main policy rate on hold at 0.50% today in a unanimous decision, and with signs that the latest virus outbreak is coming under control, further rate cuts seem unlikely this year. Korea’s third wave of the virus had …
Despite the new South African coronavirus variant, it appears that PGM production in the country will hold up well, for now, since the virus-containment measures are not as severe . The recent surge in new daily virus cases, in part caused by the latest, …
14th January 2021
We don’t think that there is a bubble in the US stock market. Yet even if we are wrong, it may inflate further before bursting given the outlook for the economy and monetary policy. To re-cap, one widely watched gauge of the US stock market’s valuation is …
