In typically conservative fashion, Banxico’s left its policy rate at 4.25% despite the weakness of inflation and the deteriorating near-term outlook. However, the dovish statement reaffirms our view that there will still be one more 25bp rate cut in this …
17th December 2020
Recent developments suggest that inflation will recover more strongly in 2021 than we previously thought. We now expect inflation to be above 2% for most of the year, before dropping back in 2022. Inflation was still low at 1.0% in November (see here ) …
The positive news on vaccines meant that the Monetary Policy Committee (MPC) didn’t feel the need to loosen policy any further at its December meeting today. And, as long as there is a Brexit deal by 31 st December 2020, we don’t think it will need to …
As was widely expected, the Norges Bank left its policy rate on hold at zero this morning. However, it brought forward the projected start of rate hikes and signalled that it will retighten macroprudential policy next year, which confirms our view that …
Net portfolio inflows into EMs have been close to multi-year highs this month, and that appears to have come alongside an uptick in sovereign Eurobond issuance in recent weeks. Even so, debt issuance hasn’t been abnormally large. And it has been skewed …
We disagree with the idea that the valuations of most “risky” assets have risen to unsustainably high levels. In fact, we think that the valuation of the US stock market could have scope to rise a little higher, and the spreads of US corporate bonds fall …
This morning’s decision by the Swiss National Bank to keep its policy settings unchanged was pretty much a foregone conclusion. Looking ahead, the SNB will brush off being branded a ‘currency manipulator’ by the US Treasury but is still likely to be less …
The decision by Taiwan’s central bank (CBC) to leave interest rates unchanged at 1.125% came as no surprise given the strong performance of the economy. We expect interest rates to be left unchanged over the coming year. Today’s decision was correctly …
Indonesia’s central bank left interest rates unchanged today, but given the poor outlook for growth, further easing is likely early next year. The decision by Bank Indonesia to leave interest rates unchanged at 3.75% came as no real surprise – 24 of the …
We expect 2021 to be a better year for the global economy than most envisage. GDP growth in many major economies will surprise on the upside, with those that suffered the sharpest downturns this year generally rebounding fastest. Nonetheless, policy …
The central bank in the Philippines (BSP) left its key policy rate on hold today at 2.0%, but the weakness of the recovery means further easing is likely. The pause was no surprise. All 16 analysts polled by Bloomberg had expected no change, including …
We think that industrial metals prices will ease back in 2021 primarily because we expect growth in China’s demand to slow. However, we acknowledge that there are some upside risks to our price forecasts, including the possibility that metals demand …
The fact that the government revised up its estimate for the underlying cash balance in 2020/21 by more than 1% of GDP since the October Budget underlines that the economy is recovering much faster than most had anticipated. The government’s GDP growth …
The Fed tweaked the guidance for its asset purchases in the statement issued after the conclusion of today's FOMC meeting, with the new language implying those purchases could continue for longer than previously believed. Nevertheless, with yields already …
16th December 2020
The US Treasury’s decision to label Vietnam a currency manipulator today is primarily a response to the surge in Vietnam’s trade surplus with the US. The next step is likely to be talks – with Vietnam likely to promise to increase imports from the US and …
Office completions are set to rise again in Central London next year. We think this will mark the peak for this development cycle in London though, as an increase in remote working will dim the outlook for occupier demand, weighing on development starts …
While the real yield differential between the US and the euro-zone has moved against the euro recently we doubt that this trend will continue. And, in any case, we think that factors other than changes in real yield differentials will continue to push the …
December’s flash PMIs revealed that restrictions in the euro-zone and the UK continue to weigh on services activity and that advanced economy manufacturing is still faring well. Meanwhile, building price pressures in the US point to inflation there rising …
As the country begins to return normal next year, the hardest hit apartment markets in the country will recover. New York City looks particularly well-placed to benefit from returning non-office-based workers. Combined with aggressive rent cuts, which …
After the storm of 2020, policymakers in Sub-Saharan Africa will be hoping for calm in 2021. But with vaccine distribution posing a key challenge in the region, economic recoveries may be slower than other parts of the world. And debt relief initiatives …
The Korean government is on the verge of introducing much tighter restrictions to stem the rise in coronavirus cases. We are not cutting our GDP growth forecasts yet, but the risks are now clearly to the downside. Daily new confirmed cases of coronavirus …
The Saudi 2021 budget shows that the recent improvement in the oil market hasn’t swayed officials to alter their plans to keep fiscal policy tight in the coming years. This will help to keep the dollar peg intact and limit any further rise in government …
We think that the recovery from the pandemic will be stronger than most anticipate. That means that the labour market will tighten rapidly, allowing central banks to end their bond purchases. The upshot is that both the Australian dollar and the New …
India’s goods trade deficit widened again in November and is set to reach its pre-pandemic levels over the coming months, especially given recent positive developments on a COVID-19 vaccine. But we think the external risks will remain manageable. The …
2020 has been a year full of surprises and in this Update we outline key areas to watch next year. Early vaccine distribution will pave the way for a rapid economic recovery, but disinflation forces are likely to become stronger in Central Europe and …
15th December 2020
Frontier economies will receive only a relatively small direct economic boost from the roll-out of vaccines next year. But the indirect benefits via higher commodity prices, capital inflows and tourism spending will be more substantial. These indirect …
After rising steadily in the first half of the year as virus-containment measures curbed metals consumption, exchange stocks have since started to be drawn down. While this tallies with the robust recovery in China’s demand, we think that stocks are not …
In contrast to the consensus, we think that the economic recovery in 2021 will be quicker and fuller, the Bank of England will continue to shy away from negative interest rates, the Chancellor won’t tighten fiscal policy and if there’s a no deal Brexit, …
Although we have revised up our forecasts for economic growth in many emerging markets (EMs), we generally still expect monetary policy to remain loose, or be loosened further, to the benefit of local currency government bonds. Indeed, we think 10-year …
14th December 2020
Given a tightening in credit conditions, the Financial Policy Committee (FPC) is probably right to be unconcerned by the recent surge in mortgage lending. In fact, the Committee is preparing to loosen its mortgage lending guardrails, which may allow …
The relative resilience of state & local government tax revenues during the pandemic means that the overall budget shortfalls facing those governments are likely to be smaller than many had feared. That reduces the downside risk of state & local spending …
With open-ended funds gated for much of the year, net outflows have not been as high as in recent years. But net outflows have picked up pace in recent months and we think this will continue as a result of the increased risk of a no deal Brexit in the …
11th December 2020
The substitution of coal for natural gas in European power generation has reversed in recent months, but we doubt that this marks the start of a new trend. Instead, we think that gas-based power in Europe will become increasingly price competitive in the …
One of the biggest upside risks to our forecasts is that households spend the extra savings that they have accumulated during the past few months. If they do, North America and the UK look likely to benefit more than the euro-zone. Chart 1 shows that …
Victory for Nana Akufo-Addo in Ghana’s presidential election this week increases the likelihood of fiscal stimulus in the near term, which would support the economic recovery. But the precarious state of the country’s public finances mean that austerity …
Although the level of “Equity Q” for the US non-financial corporate sector has risen to a record high, we are wary of concluding that the stock market is in an unprecedented bubble that is bound to burst. To re-cap, Equity Q – which was popularised by the …
Latin America will be glad to see the back of 2020, although 2021 will hardly be plain sailing. In general, the hangover from weak public finances will hold back the region’s economic recovery relative to others in the emerging world, suggesting monetary …
10th December 2020
While US corporate credit spreads are now close to their pre-pandemic levels, we think that they will fall further in general as the global economy recovers with the help of vaccines. Back in the summer, when the option-adjusted spreads (OAS) of ICE BofA …
The ECB’s message that it will persist with its flexible asset purchase programme until at least early 2022 should reassure investors that there will not be a reversal of the compression of bond yields anytime soon. Beyond then, there is a little more …
We forecast that a substantial pick-up in oil demand in the second half of next year amidst a backdrop of constrained supply will push Brent oil prices to around $60 per barrel by end-2021. That said, there are clear downside risks, the most notable being …
We think that the inverse relationship between the dollar and risk appetite will remain strong over the next couple of years, against a backdrop of low and stable interest rates. We expect that the dollar will weaken further and risky assets continue to …
Parliamentary elections in Romania that took place on Sunday look set to result in the incumbent centre-right PNL party forming a new coalition government. A new PNL-led coalition would probably pursue a more conservative fiscal stance over the coming …
We expect that the price of gold will trade at around $1,900 per ounce through 2021 as US real yields remain low. That said, we recognise that there are some key downside risks to our forecast. US nominal yields could surge and investors could intensify …
South Africa’s hard activity data for October serve as a reality check following a decent rebound in GDP in Q3, suggesting that the pace of the recovery slowed markedly at the start of Q4. A second wave of COVID-19 has increased the possibility of a …
The success of the Russian government’s preferential mortgage scheme this year has prompted concerns that a bubble might be forming in Russia’s housing market, but we think this risk is some way off. In fact, low interest rates and an expansion of the …
