Bank Indonesia (BI) left interest rates on hold at 4.0% today, but it is too soon to call an end to the easing cycle. With the economy in need of further support, we think the central bank will resume its easing before the end of the year. BI left …
13th October 2020
Some measures of valuation and risk-taking in Chinese equities have approached levels last seen prior to their crash in 2015. We think another crash is unlikely, but doubt equities will make much more headway in local currency terms. To recap, over a …
The post-Global Financial Crisis (GFC) experience suggests that the South African Reserve Bank (SARB) is unlikely to raise the repo rate within our near-term forecast horizon (to end-2022). Investors are anticipating that the SARB will hike the policy …
12th October 2020
The speed and scale of the rise in coronavirus infections across Emerging Europe has prompted a response from the authorities, but policymakers are likely to turn to much broader and tighter restrictions that affect more areas of economic activity. This …
Data published by Eurostat yesterday underline that there was a large increase in labour market slack. Looking ahead, it is likely to continue to rise sharply. The euro-zone’s unemployment rate has remained very low this year in spite of the collapse in …
9th October 2020
Along with difficulty in conducting viewings, London’s hard-hit hospitality and leisure sectors meant that there was a sharp fall in multi-let industrial take-up in H1. While availability is likely to rise further in the coming months on the back of …
August’s strong increase in industrial production in Italy is not as good as it first appears. The timelier surveys point to annual declines in output, and rising virus numbers present a growing threat. Industrial production in Italy jumped by 7.7% m/m in …
The recent strength of retail sales data overstates demand on European prime high streets, with spending by tourists still absent and online purchases making an above-average contribution in most markets. That said, online spending growth has been …
It came as no surprise that the new MPC voted unanimously to keep the repo and reverse repo rates on hold today. But the relatively dovish tone of the statement, along with the dire growth outlook, mean we remain comfortable with our non-consensus view …
The conflict between Armenia and Azerbaijan in the disputed region of Nagorno-Karabakh has created yet another schism in Turkey’s relations with the US, the EU and Russia. It may only take a misstep in the conflict to trigger an escalation of geopolitical …
8th October 2020
Daily data suggest that foreign investors have been net sellers of emerging market bonds and equities in recent weeks, but there are reasons not to be very concerned. Our EM Capital Flows Trackers are constructed using monthly data on foreign exchange …
The account of the last ECB Governing Council meeting suggests that policymakers were in no hurry to increase the size of the PEPP. There has been more disappointing news on the economy since then, but on balance we still think the Bank will leave the …
We have revised up our already-bullish forecasts for the Australian dollar and the New Zealand dollar against the US dollar over the next few years, to reflect changes to our outlook for the Chinese renminbi. Crucially, though, this view hinges on …
The yield of the EMBI Europe has risen since June and we doubt that it will fall back much over the coming year if geopolitical tensions involving Turkey and Russia persist . The yield of JP Morgan’s EMBI Europe Index (EMBI Europe) of emerging European …
The further slowdowns in monthly GDP growth in Norway and Sweden in August support our view that it will take a long time for output to recover to pre-crisis trend levels anywhere in Europe. The 0.6% m/m increase in mainland Norwegian GDP in August was …
Although the SNB meets the US Treasury’s criteria for a “currency manipulator”, we doubt this would deter it from intervening further in the foreign exchange market if required to keep the franc stable. New data detailing the SNB’s FX transactions confirm …
7th October 2020
We think car makers in the euro-zone will be able to keep pace with demand for new vehicles this year, despite having had to introduce social distancing measures to their production processes. Accordingly, we see little risk of the sharp rise in car …
While Joe Biden is currently favourite to win the election, we don’t think the winner’s identity will have a major effect on the economy. We also don’t expect it to substantially alter the prospects for the asset class as, in either case, monetary policy …
The latest data have revealed a marked divergence in inflation among advanced economies, with the core rate rising in the US but falling in the euro-zone and the UK. This largely relates to temporary factors, particularly the impact of government policies …
Policymakers in Nigeria are taking steps in the right direction with recent market-friendly reforms, from liberalizing petrol prices to moves towards exchange rate unification. But the government hasn’t shed its unorthodox and protectionist tendencies, …
Our current views of many assets and the US dollar are influenced by our forecast that the yields of conventional Treasuries will remain firmly anchored, even as expected inflation increases. We are sticking to that forecast for now, despite this week’s …
The annual growth rate of M1 rose to a new record high in August but, with growth in the broader monetary aggregates now easing and bank loans continuing to decline, there is still little chance of that triggering a surge in price inflation. (See Chart …
The surge in coronavirus cases in Russia looks set to trigger tighter restrictions in the coming months. But we doubt that policymakers will re-introduce a full lockdown. After all, it would be politically infeasible to do so at the same time as they …
6th October 2020
Fears over Dubai’s debts have re-emerged in recent weeks and, in this Update , we provide revised estimates of the Emirate’s debt pile. The short point is that the debts of Dubai’s government and of government-related entities remain large, and with the …
We estimate that the income tax cuts and other stimulus measures unveiled in today’s Budget will provide fiscal support of around 2.5% of GDP in 2021/22. That won’t prevent a major tightening in fiscal policy as the huge support provided during the …
After dragging its heels for several weeks, the government has finally appointed three new members to the RBI’s monetary policy committee (MPC). Not a great deal is known about their views on monetary policy but, given that the MPC tends to follow the …
The near-term outlook for Indonesia’s economy is dreadful. A failure to contain the virus means the country will experience one of the slowest recoveries in the region. But a series of landmark reforms passed by parliament yesterday could set the stage …
The RBA kept policy settings unchanged today but signaled that more stimulus is forthcoming. We now expect the Bank to cut the cash rate target, the 3-year yield target and the interest rate on the term funding facility to 0.1% next month. We suspect the …
Consumers appear to be much more miserable than the economic fundamentals would imply. But the prospect of a second wave of unemployment and the risk of future lockdowns are not captured well by the models. As such, consumer confidence is likely to stay …
5th October 2020
The narrowing in India’s goods trade deficit in September came on the back of a decent pick-up in external demand, while domestic demand showed encouraging signs of improvement too. But sustaining the pace of recovery in both will be difficult. India’s …
With the US election result likely to have limited near-term implications for world GDP, the main issue for the global economy is how it affects US trade policy. Joe Biden would take a less aggressive approach, but he would not prevent a further …
The output breakdown of Q2 GDP showed that virus containment measures hit the hospitality, recreation, and transport sectors hardest, while financial services were relatively unaffected. The more targeted nature of second wave restrictions suggests that …
2nd October 2020
There are tentative signs that the housing market mini-boom is running out of steam. We think house price growth and transactions are probably close to their peak. As pent-up demand from lockdown is expended in the coming months, we expect house price …
The resurgence in virus cases in the UK has led the government to reverse its advice on returning to the office. Given that many workers continued to work from home anyway, the impact of this change in policy is likely to be limited. That said, the new …
A collapse in foreign firms’ reinvested earnings and a stronger recovery in goods exports than imports have caused Poland’s current account surplus to swell to record levels during the pandemic. While some of these factors are likely to fade, we think …
While we continue to think that this year’s property downturn will be milder than in past cycles, next year’s recovery is looking more fragile. This in part reflects revisions to our economic view, but also structural changes which are weighing on the …
1st October 2020
September’s relatively strong batch of emerging market manufacturing PMIs suggests that recoveries in industrial production continued in September. But with the global rebound losing steam , growth in export-led EM industrial sectors is likely to slow in …
While it is not clear that inflation expectations are less well anchored than in the past, they are at a low level. With the actual inflation rate falling, this reinforces the case for further ECB policy easing. Christine Lagarde devoted several …
Today’s batch of manufacturing PMIs suggest that production continued to rebound in September, albeit at a slower pace than earlier in the quarter. The big picture, though, is that the state of the recovery in manufacturing is unlikely to be a good guide …
The central bank in the Philippines (BSP) left its main policy rate on hold at 2.25% today for a second consecutive meeting, but with the economic recovery proving to be one of the slowest in the region, we doubt the Bank has finished easing yet. The …
Despite the sharp drop in GDP, the relatively small fall in world trade has meant that industrial rents in port cities held up better than expected during H1. And we think that the ongoing recovery in global trade will prevent rents from falling this …
Surging demand has led to a sharp drop in the number of new homes for sale, with the fall driven by a collapse in the inventory of completed homes. A jump in single-family building permits will provide some support to overall new home supply but, given …
30th September 2020
President Lagarde’s speech today suggests that she will argue for a higher, symmetric inflation target and a move towards a form of average inflation targeting as part of the ECB’s strategy review. All else equal, this should support continued ultra-low …
If ever there were a sign of how extraordinary economic developments have been this year, India recorded a stonking current account surplus in Q2. This is unlikely to last long, as oil prices will rebound, remittances drop and the goods trade deficit has …
