China’s September PMI readings suggest that the economy is now entering a period of above-trend growth, which is indisputably good news for the prices of commodities, particularly industrial metals . The official manufacturing PMI jumped to 51.5 – a …
30th September 2020
A higher gold price, along with the ongoing recovery in industrial demand, particularly from China, means that the price of silver is likely to rise in the year ahead . The silver price has fallen sharply in recent weeks, from a peak of around $29 per …
Recent moves in real estate equity prices suggest that there is upside risk to our forecasts for industrial property values this year. However, even the industrial sector will not be immune if rising virus cases lead to widespread lockdowns. Earlier in …
The passing of Kuwaiti’s Emir Sheikh Sabah al-Ahmad al-Sabah has raised some concerns over political stability in the country, and, while the transition will probably prove to be smooth, the new Emir will accede to the throne facing several tough …
29th September 2020
In this Update , we consider the near-term outlooks for the yen, Japanese equities and government bonds under new Prime Minister Yoshihide Suga , and compare them with their performance in the early years of the tenure of his predecessor, Shinzo Abe. Abe …
Although WTI crude oil prices have partially rebounded from their second-quarter nadir, oil production in the US has yet to recover. We suspect that low prices and producers struggling to source financing will mean that US oil output won’t recover to …
EM financial conditions have tightened a little in recent weeks, although only in Turkey does this threaten to become a significant headwind to growth. Elsewhere, conditions remain very loose but the positive effect of this on activity will be dampened by …
Although the Norwegian krone has been the worst performing G10 currency so far in 2020 (see Chart 1), we expect it to make up some lost ground in 2021 even if it falls a bit more in the near term. The US dollar rose sharply against most other G10 …
The resurgence of COVID-19 in the euro-zone has hit Spain the hardest and hospital capacity there is under strain, most notably in Madrid. Restrictions have taken a toll on activity and stricter ones are likely to follow. So there is a serious risk that …
Most EMs in Latin America, Africa and South Asia that were battling worryingly large virus outbreaks appear to have passed the peak in recent weeks. That should allow a gradual scaling back of restrictions, supporting economic recoveries. Meanwhile, the …
China is ramping up its purchases of US energy and agricultural products as promised in the Phase One trade deal. But instead of reflecting a desire to meet its obligations to the US, we think China’s buying mostly reflects opportunistic purchases at low …
28th September 2020
Despite weakness in some urban apartment markets, which is set to weigh on home price inflation in Toronto and Vancouver, we see scope for the national average home price to rise by 12% by end-2022. While record home sales have made the headlines …
The fallout from COVID-19 will probably keep inflation subdued in the near term . But there is a risk of significantly higher inflation further ahead if earlier policy stimulus starts to push prices up sharply and central banks either fail to nip it in …
Having instructed many firms to cease trading during the lockdowns, governments understandably pulled out all the stops to prevent them from going under. However, we expect this support to be gradually withdrawn, causing the number of bankruptcies to …
Commercial property has outperformed both Treasuries and equities in the last two decades, but the fast-forward of structural change caused by COVID-19 will mean that in the next decade property is again likely to underperform equities. Over the last two …
25th September 2020
Short-time work schemes are not being used as much as they were in the spring, but they still account for about 5% of the labour force. So as euro-zone governments reduce support for jobs (in the way that the UK government announced this week), …
Despite falling back a little this week, we still expect most currencies in the Asia-Pacific region to make headway against the dollar over the next couple of years, led by a stronger renminbi. As we set out here , we have changed our view on the Chinese …
The Central Bank of Egypt (CBE) cut interest rates by 50bps at Thursday’s MPC meeting after a six month pause to the loosening cycle. Policymakers are likely to remain cautious about future easing, but we think rates will be reduced gradually over the …
The surge in lending growth during and immediately after lockdowns is well and truly over. But with the authorities tightening virus containment measures again and signs that the economic recovery is grinding to a halt, we wouldn’t be surprised to see …
Continued trade tensions between the US and China are providing a significant boost to economic prospects in Taiwan and Vietnam. Having also successfully contained the virus without significant economic damage, Taiwan and Vietnam are likely to be the only …
The experience from second virus waves in Australia, New Zealand and Japan is that consumer spending falls even if governments don’t impose major restrictions. However, there are three key reasons why second waves may be less damaging to economic activity …
Although a vaccine against COVID-19 may not dramatically alter the near-term economic outlook, we expect it would structurally improve the demand prospects for many commodities and therefore boost prices, particularly for crude oil . As a ‘second wave’ of …
24th September 2020
The policy measures announced today by the Chancellor will go some way to cushioning the blow to the economic recovery from the new restrictions to contain COVID-19 and limiting the long-term hit to unemployment. But these actions won’t eliminate the hit …
The Turkish central bank’s (CBRT’s) decision to hike its policy rates by 200bp today is a response to the recent lira weakness, and should help to restore the Bank’s battered credibility. The move gives the CBRT more room to tighten monetary conditions …
We are not convinced the Fed is sowing the seeds of the next crisis by pursuing very easy monetary policy, even if this contributes to higher asset prices. Instead, history suggests the main factors inflating bubbles that pose serious risks to the economy …
A number of EMs – notably Brazil, Mexico and Korea – have experienced strong increases in food inflation in recent months, which have pushed up headline rates. But we think that food inflation in the worst-affected countries is close to a peak. Even if it …
Some policymakers at the ECB have hinted recently that further policy loosening could be on the way. There is little to be gained from announcing an expansion to QE at this stage, but we wouldn’t be surprised to see the Bank make its TLTROs more generous, …
The fact that policymakers at the SNB and the Norges Bank left policy settings unchanged this morning came as no surprise. Both banks are likely to leave policy unchanged throughout our forecast horizon and, in the case of the SNB, probably until at least …
Asian central banks have taken their foot off the gas in recent months – no central bank in the region has cut rates since July. But we think this represents a pause rather than an end to the easing cycle. With GDP still well below pre-crisis levels in …
While the government still needs to gain support for its throne speech and then back it up with budgetary action, the array of policy proposals confirms it is ready to take a far more activist approach to fiscal policy. This could lead to GDP growth being …
23rd September 2020
The number of confirmed virus cases in the euro-zone has continued to increase rapidly in recent weeks and poses a growing threat to the economic recovery. Some countries, including Italy and Germany, have been little affected so far and the number of …
Despite the recent falls in the prices of precious metals, we still expect the gold price to edge higher over the coming year as US real yields drift a little lower . The gold price surged from March to early August owing to the plunge in US real yields, …
The new restrictions to contain COVID-19 won’t prevent some sectors from continuing to recover, but they will cause others to go backwards. And based on an assumption that restrictions are more likely to be tightened further than loosened, we think …
Low utilization of office space supports our expectations of weak short-term demand. And, despite some firms raising concerns over productivity as the current remote work “experiment” continues, there are good reasons to think that these will not have a …
September’s weak batch of flash PMIs suggest that the rebound in activity in DMs seen over the past few months is losing steam, even in the countries where virus numbers are falling. The risk now is that renewed containment measures in the UK and the …
The Turkish lira has continued to weaken in recent weeks and, with the response by policymakers likely to fail to placate investors, we now expect the currency to fall to as low as 9.25/$ by the end of next year. What’s more, the risks lie firmly towards …
With new virus cases still high, capital controls more pervasive, and fiscal policy unlikely to stay loose, we are nudging down our Argentina GDP forecasts. We now expect an 11% drop this year and just a 4% rebound in 2021 (previous forecasts -10% and …
The Bank of Thailand’s (BoT) decision to leave interest rates unchanged at 0.5% came as no surprise, and rates look set to remain unchanged for some time to come. The central bank hinted at further measures to support demand, but the onus will be on the …
The Reserve Bank of New Zealand (RBNZ) continued to set the stage for negative rates today and we think the OCR will be cut into negative territory early next year. As expected, the Bank did not adjust the overnight cash rate (OCR) or its asset purchase …
Sweden has so far avoided a second wave of virus cases and the prospect of it sticking to its light-touch approach, rather than tightening restrictions in line with much of Europe, means that the risk of a renewed drop-off in economic activity in Q4 is …
22nd September 2020
Today’s decision by the Central Bank of Nigeria (CBN) to lower the benchmark rate, from 12.50% to 11.50%, shows that policymakers have put aside their concerns about inflation and are increasingly spooked by the weakness of the economy. We think that the …
News that the government has extended the ban on commercial property evictions will be welcomed by tenants, especially in the hard-hit retail and hospitality sectors. But, already facing high levels of rent arrears, this will be a further strain on …
The decision by Hungary’s central bank to leave its base rate on hold at 0.60% today highlights that the central bank is in a bind due to high inflation and concerns about the forint. Further interest rate cuts are likely to remain off the table and the …
Rising food inflation in Brazil is likely to remain a cause for concern among politicians over the rest of the year, but with core inflation extremely weak, it’s not going to spook the central bank (BCB). One of the most notable features of the recent …
The rapid bounce-back in construction and industrial activity in China, reflected in our revamped China Activity Proxy, looks set to continue in the coming months as additional fiscal support is introduced. This underpins our forecast that most industrial …
The fact that most governments were caught on the backfoot in the early stages of the pandemic meant that they had little alternative but to respond with widespread lockdowns. Six months on, a combination of a better understanding of the virus and …
The Riksbank’s decision to leave the repo rate on hold at zero this morning was never in doubt, but it left the option of a rate cut firmly on the table, linking it explicitly to moves in inflation expectations. We think it more likely than not that the …
