Turkey’s public finances remain in good shape compared with most other EMs but they have deteriorated in recent years and are no longer the pillar of strength that they once were. The debt-to-GDP ratio will continue to rise and, as investors demand a …
5th June 2020
OPEC+ is expected to meet in the next few days. Despite reports of rifts amongst its members, we think that it will agree to extend its current 9.7m bpd production cut for at least another month . At the latest meeting in April, OPEC and its allies …
Public sector debt to GDP ratios are going to rise sharply and, in most cases, governments can tolerate this. But to retain the faith of financial markets, they might still need to make sure that debt is on a stable trajectory. For most, this is not a …
The steepening of EM local currency government bond yield curves since the crisis began in mid-February largely reflects a fall in short-term rates, but in some cases, like Brazil, Mexico and South Africa, it also reflects persistently high long-term …
4th June 2020
The ECB’s decision to increase the size and duration of the PEPP should sustain the positive sentiment towards the euro-zone in the near term and reinforce the sense that, for now, European policymakers have got their act together. But more difficult …
In a world in which central banks and governments are likely to ensure that sovereign bond yields stay low for the long-term, real estate is well-placed to benefit. Therefore, although we expect property yields to rise this year, we still expect …
The recent progress in talks between Argentina’s government and bondholders suggests that a debt restructuring deal is increasingly likely. However, we are sceptical of the IMF’s view that the government’s latest offer would restore public debt …
The government today unveiled a grant for buyers of new homes. While grants for first-time home buyers boosted home sales during the global financial crisis, the new scheme won’t offset the impact of the border closure on housing demand. We still expect …
Daily price data give a strong indication that food inflation dropped in May, most likely as supply disruptions eased a touch and agricultural activity was allowed to resume. With global oil prices low and domestic demand collapsing, there is little …
The Bank of Canada made no new policy announcements today and instead scaled back some of its liquidity operations. But with its focus now shifting to “supporting the resumption of growth”, we think new Governor Tiff Macklem will expand the Bank’s asset …
3rd June 2020
Many firms have furloughed employees during the state of emergency and stopped paying wages. But with the economy now opening up again and the government’s employment subsidy scheme starting to be used more widely, labour income should bounce back even if …
The latest activity data suggest that stringent lockdowns are causing especially deep falls in GDP in Peru and Argentina. But with the region as a whole struggling to contain outbreaks, and limited scope for looser policy, the economic recovery is …
Disruption to supply chains and depressed demand mean that euro-zone goods exports will slump this year, hitting open economies such as the Netherlands and Germany the most. But the hit to services exports, notably tourism, is likely to be bigger, leaving …
On the face of it, the surge in unemployment in the US implies that households are being hit harder by the crisis than those in Europe. But much of this reflects differences in the way that furloughed workers are being treated in the data. Taking this and …
The measures to contain the coronavirus outbreak have shut down economies across the world, leading to job losses and falls in income. Migrant workers appear to have felt the brunt of this and the resulting drop in remittances will hit the economies in …
Exchange stocks are best used to judge the breadth of the downturn in metal demand, rather than the depth. With that in mind, we think that exchange stocks will help to tell us when demand for metal has started to recover, though they will probably …
Coal prices should receive their usual seasonal uplift later this year. Nevertheless, we think that the average price of Newcastle coal will fall in 2020 and 2021 owing to weak demand and strong supply . The price of Newcastle (Pacific) coal has plummeted …
The ECB has been purchasing a disproportionate share of Italian government bonds, but they are less heavily skewed towards Italy than we had anticipated. This in turn means that there may be less risk of a renewed flare-up of tensions over the ECB’s asset …
2nd June 2020
A look at South Africa’s recent history would suggest that the monetary easing cycle has further to run. We now expect an additional 75bp of cuts in the coming months, taking the repo rate from the current 3.75% to 3.00% by year-end. This is more …
Consumer confidence has fallen by far more in Canada than elsewhere in the past few months, which is another reason to think that the economic recovery will lag that in the US. Standardising the latest indices from the OECD (which are formed from the main …
Markets that are most reliant on international capital will inevitably bear the brunt of the collapse in cross-border flows as investors remain very cautious in the face of COVID-19-related uncertainty. But the relative stability and liquidity of the core …
A sharp slowdown in Vietnam this year is unavoidable, but with the virus contained and with exports holding up better than might have been expected, we are raising our 2020 GDP growth forecast. Vietnam is likely to be one of the few economies anywhere in …
The RBA sounded cautiously optimistic when it left policy settings unchanged today, but we still think that it will expand government bond purchases soon. The RBA surprised no one by keeping both the target for the cash rate and the target for 3-year …
Prime Minister Modi’s BJP has expedited structural reforms that normally face stiff political resistance, ostensibly as part of efforts to support recovery from the coronavirus crisis. These moves will do little to boost demand in the near term. But if …
While we would interpret the May PMIs with caution, the small rise in the EM manufacturing PMI last month tallies with high-frequency indicators and suggests that EM activity is probably past the worst. The increase in the EM manufacturing PMI to 45.4 in …
1st June 2020
May’s PMIs offer evidence that the global industrial sector is now on the slow road to recovery. But with demand extremely weak, activity is still far below normal levels and price pressures have eased. While the global manufacturing PMI partially …
Inflation expectations are not always a good leading indicator of inflation. However, the decline in most measures of inflation expectations in the past two months may be a cause for concern at the ECB. Rather than being a guide to future inflation, …
China’s latest raft of PMIs showed a continued improvement in industrial activity in May, which is positive news for commodities demand. However, the pace of recovery remains slow . The Caixin manufacturing PMI picked up to 50.7 in May, from 49.4 in …
Our GDP Tracker suggests that the Saudi economy held up relatively well in Q1, but more timely low-profile data point to a collapse in activity in Q2. And, as lockdown measures are eased, the onset of fiscal austerity will hold back the economic recovery. …
The partial recovery in REIT prices since their late March trough gives further support to our view that all-property capital value falls will not exceed 10% this year. But, with data centres, single-family homes and self-storage outperforming in recent …
29th May 2020
We anticipate that financial repression will bear down on the renewed low level of volatility of Treasuries, while facilitating a further decline in the level of volatility of US equities . Against this backdrop, we project that the returns from the …
Additional stimulus from China strengthens our view that the rebound in equities will continue, especially in emerging markets. But the effect is unlikely to be as big as in 2008-09, and China’s increasingly-tense relationship with the US risks …
So far, there is only limited evidence that a lack of raw material is constraining output at Chinese smelters. But we think that will change in the months ahead. In our view, output is still most likely to be curbed at copper and nickel smelters, which is …
Given the collapse in the global economy, merchandise exports from Emerging Asia have so far held up better than might have been anticipated. The fact that the global slump has been driven by services rather than manufacturing and the strength of demand …
Bank lending to firms jumped again in April, suggesting that government loan guarantees and cheap ECB funding for banks are having the desired effects. But the central bank’s work is far from done. We expect it to announce a further increase in its …
We think that today’s 100bp interest rate cut by the Nigerian central bank, to 12.50%, will be followed by further loosening as economic recovery proves weaker than the central bank expects. We have pencilled in an extra 50bp cut, most likely at the …
28th May 2020
An incentive to sell to support cash-flow, relatively affluent buyers and a streamlined selling process help explain why new home sales increased in April even as the unemployment rate hit a record high. Without those benefits, existing home sales will …
While Sweden’s economy has fared better than the worst-affected countries, as a result of its comparatively light-touch lockdown, it is still set for a year to forget. We expect the decline in GDP this year as a whole to be in a similar ballpark to that …
The euro-zone is not suffering from excessive leverage among banks and households, or slow and counter-productive responses from policymakers, which held back its recovery from the last two crises. But the current downturn still throws up some of the same …
The prospect of a joint European fiscal response has helped to ease upward pressure on the Swiss franc and means that there is light at the end of the tunnel for the SNB following its recent bout of FX interventions. While monetary policy will remain …
Quarantine measures associated with COVID-19 have seen geopolitical disputes, such as US-Iran tensions, seemingly fall under the radar of energy traders. That said, the national security law imposed on Hong Kong by China could re-escalate US-China trade …
The Bank of Korea (BoK) cut its policy rate by 25bps to a new record low of 0.50% and gave some vague assurances that it would act to keep long term government bond yields down. With growth likely to disappoint and conventional policy reaching its limit, …
Amid the severe economic damage that the coronavirus and containment measures have caused, one potential positive is the greater prevalence of cashless payments as people make more purchases from home or transfer less physical cash to prevent the virus …
The EC fiscal proposal confirms that Europe’s fiscal response will be large enough to help to ease concerns about how the current crisis will be financed. But the details are yet to be finalised, and the money will probably not start to flow until next …
27th May 2020
Although the S&P 500’s rally over the past two months is remarkable, we don’t think that it reflects excessive optimism among investors. In our view, equities can rise further from here. The S&P 500 has risen by over 30% from its intraday low on 23 rd …
The large supplementary budget drafted by PM Abe’s Cabinet today lifts fresh government spending in response to the virus to around 8% of GDP. That should provide the platform for a strong recovery in the second half of the year, provided infections don’t …
Our forecast that the Brazilian real will recoup some lost ground by end-2020 should put upward pressure on the prices of its commodity exports. However, other factors, such as the health of the Chinese economy, are likely to be more important drivers of …
The impact of the crisis so far has been overwhelmingly disinflationary, and with demand likely to be depressed for a long time to come, inflation is set to remain very weak. A period of entrenched deflation is a growing concern in some countries, most …
Large parts of Emerging Asia have controlled the virus exceptionally well, which should allow activity to recover quicker than in most other EMs. In contrast, many countries in Latin America are still struggling to contain their outbreaks. With lockdowns …
26th May 2020
