China’s February PMI data were more subdued but still suggest that economic activity remains elevated, and the data elsewhere in Asia point to persistent strength in commodities demand in the coming months . The official manufacturing PMI (released …
1st March 2021
In light of our latest long-term economic and financial market forecasts, we have revisited our views for commercial property performance over the next three decades. We think that average returns will be lower than in the recent past, but that property …
Record high lumber prices are leading to delays in housing starts, and as result the share of homes for sale that have not been started reached a record high in January. While that will constrain single-family starts in the short term, sales of homes that …
26th February 2021
Despite the rise in EM bond yields over the past week, EM financial conditions remain very loose. Most central banks are likely to look through the accompanying sell-off in currencies (indeed, some may welcome weaker exchange rates). But these moves do …
The recent increases in real bond yields leave them still at low levels, but ECB policymakers nonetheless seem uncomfortable. Their verbal interventions have had little impact so far, so we think that there is a good chance that they will increase their …
We doubt that the Reserve Bank of New Zealand’s new obligation to consider house prices will drastically change the outlook for monetary policy. But given that house price growth remains very strong, there is a risk that the Bank tightens policy earlier …
Given our latest forecast for oil prices, we now expect the Canadian dollar to rise further in 2021 than we previously thought, but to drop back a bit in 2022. Despite already rising more than 15% against the US dollar from the last year’s low, we think …
25th February 2021
Even if nominal government bond yields kept rising this year, we suspect that this would be driven by rising inflation compensation rather than real yields, in contrast with the past couple of weeks. Chart 1 breaks down the increases in 10-year government …
We doubt that Treasury yields will continue to climb rapidly. However, that would be another reason to expect the returns from US REITs to fall short of those from ordinary US equities over the next few years. US REITs appear to have so far largely …
President Biden’s fiscal plan would support the US economy but the positive spillovers to emerging markets via trade are likely to be surprisingly limited. We doubt the Fed would move more quickly to reduce stimulus in response, and external financing …
President Biden’s stance regarding international climate policy and the Iranian nuclear deal is very different from Donald Trump’s, but we are sceptical that he will be able to enact any significant policy change. Accordingly, we think that his foreign …
Although we forecast a further small rise in the 10-year Treasury yield this year, we doubt that this will upend the US stock market. Admittedly, higher Treasury yields increase the “risk-free” nominal rates at which future corporate earnings are …
The surge in average earnings growth to a ten-year high is not what it seems as it’s partly due to large numbers of lower-paid workers losing their jobs. As such, the upward pressure on inflation from earnings growth is much smaller than implied by the …
Fears of a repeat of the 2013 “taper tantrum” look wide of the mark. But even if there was a return to the financial market turmoil of eight years ago, Asian economies are much better placed to cope. Government bond yields in the US have continued to rise …
The Bank of Korea (BoK) left its main policy rate on hold at 0.50% today in a unanimous decision, and while further rate cuts are now very unlikely, we expect more intervention in the government bond market to curb rising long-term yields. The decision to …
The recent fall in the Swiss franc against the euro will be music to the SNB’s ears, and we think that there is plenty of scope for the currency to drift lower over the coming years. Having traded in a narrow range around CHF 1.08 over the past six months …
24th February 2021
If passed in full, President Biden’s $1.9tn American Rescue Plan would constitute a fiscal stimulus worth 1.4% of global GDP, coming hot off the heels of the $900bn deal struck in December. While a boon for the US economy, we think that the economic …
The South African 2021 budget unveiled today was anything but the “non-austerity” budget that Finance Minister Tito Mboweni claimed he was presenting. Indeed, the fiscal plans imply significant tightening and will, if implemented, stabilise the public …
The pound has performed better than all other G10 currencies so far in 2021 (see Chart 1), rising from $1.36 at the start of January to almost a three-year high of $1.41 now. We expect the strength of sterling against the US dollar to continue and have …
We think market participants are getting ahead of themselves by pricing in an interest rate hike from the Bank of Canada in 2022, particularly as Governor Tiff Macklem again signalled yesterday that the Bank will place greater emphasis on employment …
A three-month extension to the stamp duty holiday should prevent sales falling in Q2 even if it does not incentivise much new activity given ongoing delays in conveyancing. And the timeliest data suggests that buyer demand may prove resilient when the tax …
Hong Kong has curtailed some of last year’s emergency spending but today’s budget signals that fiscal policy remains loose. There is room to do more, but the key determinant of the economic outlook is not in the financial secretary’s remit: it hinges on …
Labour markets across Central and Eastern Europe (CEE) have held up well since the start of the pandemic and we think this will continue over the next few years, which will support recoveries across the region. One key risk to this view is that government …
The Reserve Bank of New Zealand (RBNZ) sounded dovish when it left policy settings unchanged today, but we still expect the Bank to begin increasing rates next year. As expected, the RBNZ did not adjust the OCR or its asset purchase program at today’s …
We are raising our forecast for HICP inflation in Germany and expect it to peak at over 3.5% this year. But we doubt that this will prompt any policy tightening by the ECB because aggregate euro-zone inflation will stay much lower, and inflation will drop …
23rd February 2021
Permanent increases in certain types of online sales will mean that regional and super-regional malls underperform the other retail sub-sectors for at least the next two years. Our forecasts point to another 12%-14% of capital value falls in 2021-22 for …
Global aluminium production rose in January. And with LME and ShFE prices near multi-year highs, we expect further gains in production this year, which will ultimately weigh on prices . According to the International Aluminium Institute (IAI), global …
Mortgage arrears have remained very low, casting doubt on our view that we will see a substantial rise in forced selling later this year. But new evidence from the Resolution Foundation shows that policy support remains crucial to households keeping up …
The strong Q4 GDP data for Peru suggests that the economy was heading into 2021 with significant momentum. And while there are growing downside risks from rising COVID-19 cases and a politically contentious vaccine programme, we’re still more upbeat than …
With vaccines improving the economic outlook and labour market data surprising to the upside, we have revised down our unemployment forecasts for almost all major economies. But wider measures of labour market slack imply a growing divergence by region. …
Asia’s vaccine rollout has got off to a slow start. This is not a big concern in countries that have contained the virus and where social distancing is not a drag on growth such as Taiwan and China. But in Malaysia, the Philippines and Indonesia, the slow …
The minutes of the Reserve Bank’s February policy meeting – in which interest rates were left unchanged – show that the MPC remains cautious on the inflation outlook but that it is also committed to keeping policy accommodative to ensure that the economic …
The Bank of Japan is likely to widen the tolerance band around its 10-year yield target next month. The last time this happened, many saw it – wrongly in our view – as a form of policy tightening. It will be driven more by a desire to steepen the yield …
We think that the government’s roadmap for easing England’s current COVID-19 lockdown will direct the economy back to its pre-pandemic size by Q1 2022. With the Chancellor and the Bank of England unlikely to knock the economy off course with tighter …
22nd February 2021
The Brazilian president’s decision to sack the Petrobras CEO last Friday points to greater government intervention in the economy and could be a prelude to a looser fiscal stance too. This suggests that the country’s financial markets are likely to remain …
Commercial banks left the Loan Prime Rate (LPR) unchanged on Saturday. But monetary conditions have tightened in practice since the start of the year. We expect the PBOC to formalise the shift with policy rate increases in the next few months. The …
While we expect that EM currencies in general will rise further this year due to strong appetite for risk and a recovering global economy, we think several headwinds will limit their appreciation. For a start, EM currencies as a group have already …
19th February 2021
The batch of flash PMIs for February suggest that shipping constraints and some goods shortages are raising costs for manufacturers. There are some signs that these cost pressures are being passed on to consumers. Outside of the US, price pressures in …
Although we expect oil prices to rise a bit further this year, we doubt that we are in the early phase of a new “super cycle” in commodities. In fact, we project that the returns from commodities will lag those from US equities considerably over the next …
Israel’s rapid vaccination programme has allowed the government to set out plans to re-open the domestic economy in the coming weeks and may offer some lessons for other countries. The speed at which the restrictions will be lifted is the most striking …
Our long-run forecasts suggest that China will still be the second largest economy, measured at market exchange rates, in 2050. The most likely scenario is that slowing productivity growth and a shrinking workforce prevent China ever passing the US. But …
It’s unlikely that Colombia’s government will achieve its lofty fiscal targets over the coming years, which may prompt a loss of its investment grade rating – an outcome that is not fully priced into financial markets. But a bigger concern from an …
18th February 2021
The account of the January ECB monetary policy meeting confirms that there was unanimous support for the policy agreed at the December meeting, when the PEPP envelope was increased to €1.85trn and more TLTROs were announced. We expect the ECB to stick to …
Taken alone, prolonged restrictions on international travel would do little to hinder the global recovery since overseas tourism is a small share of world GDP and some of the lost spending would be made up. But the aggregate masks a wide range of effects. …
Even if a significant share of the $1.6trn of student loan debt owed to the Federal government was forgiven, it would provide only a limited boost to activity while driving a potentially sizable further increase in the budget deficit. President Joe Biden …
Turkey’s central bank left its policy rate unchanged at 17.00% at today’s MPC meeting and the hawkish tone in the statement, including a commitment to bring inflation back to the 5% target, supports our view that an easing cycle will arrive later and will …
While new COVID-19 infections have dropped, our Mobility Trackers have shown only a slight pick-up in activity as tight restrictions remain in place in many economies. Vaccine rollouts have been slow in the euro-zone and most EMs, but much faster in the …
