There is a good chance that the renewal of antagonism between the US and China, this time over the origin of the coronavirus rather than trade, will persist – and might even escalate – in the run up to November’s presidential election. We suspect that …
6th May 2020
The Bank of England has been expanding its balance sheet during the coronavirus crisis mainly to fulfil its role of lender of last resort in a liquidity crisis. That will probably remain the focus for a while yet. But at some point, the Bank may change …
The impact of the lockdowns on the ability of statisticians to collect price data means that measures of inflation will be less accurate than normal. However, this will probably have little impact on economic policy because these problems are dwarfed by …
There are signs that activity was already rebounding in the second half of April and this week some provinces began the slow process of re-opening. It is likely to be a long time before most businesses can operate at anywhere near full capacity, but this …
Low-profile data suggest that the economic damage caused by lockdowns in some of the poorer economies in Africa will be more moderate than in higher-income countries. But the economic pain could be more protracted in the former group of countries as they …
Even though some economies in Latin America and EMEA are still struggling to contain coronavirus outbreaks and are likely to recover only slowly afterwards, we doubt that their equities will continue to underperform if conditions in the global economy …
5th May 2020
The collapse in the confidence surveys in Brazil and Mexico last month point to a contraction in activity that exceeds that experienced in each economy during the Global Financial Crisis. And with coronavirus cases still increasing sharply, this month …
A worrying divergence is emerging in the policy response across the region. Policymakers in Central Europe imposed lockdown measures early which have succeeded in containing the outbreak. And the scale of economic policy support will bolster recoveries as …
The data now point to two million households with mortgage holidays. This suggests that the peak in arrears may be much higher than during the GFC. But, with mortgage credit quality and banks’ financial positions better than in 2007, the outlook for …
Just as the Greek economy was getting back on its feet the coronavirus pulled the rug from under it. And while the government’s generous fiscal support will cushion the blow, it also raises questions over debt sustainability once this is all over. Last …
The German constitutional court ruling today will not bring the ECB’s asset purchase programme to a sudden end. But it highlights that a successful legal challenge to the its policies in the future could contribute to increased tensions in the bond …
We expect the returns from EM sovereign dollar bonds to be quite strong over the next few years, as the global economy gradually recovers. With some notable exceptions, we think that the dollar bonds of those countries and EM regions which have suffered …
There seems to be a lot of confusion as to exactly how Saudi Arabia uses its reserves to finance twin budget and current account deficits. In this Update , we shed some light on the matter. Oil prices have recovered some lost ground over the past week or …
Bank Negara Malaysia (BNM) today cut its policy rate from 2.50% to 2.00%, and with the outlook for growth very poor, we think the central bank will ease policy again in the coming months. Of the 20 analysts polled by Bloomberg, 14, including ourselves, …
The Reserve Bank of Australia (RBA) today left its interest rate targets unchanged but an easing of collateral requirements should provide some support to corporate bond markets. While the financial markets expect the Bank to hike rates in about three …
The drop in the EM manufacturing PMI to 42.7 in April confirms that industry is collapsing in Q2. Even though industry will bounce back in the EMs starting to ease lockdown measures, the weakness of global demand means that any recovery will be very …
4th May 2020
Manufacturing PMIs for April fell sharply, but the way the surveys are constructed means that conditions may be even worse than the headline figures suggest. Indeed, the sub-components of the surveys are consistent with global industrial output …
Government debt will increase sharply across the region this year. For most countries this will not be a problem. The situation is most worrying in Pakistan and Sri Lanka where debt relief will be needed to put finances on a sustainable footing. Most …
In those EMs that were quick to control their coronavirus outbreaks (South Africa, Poland, Vietnam), lockdowns are being eased which will allow activity to gradually recover. But the damage from social distancing will last for longer in EMs which were …
Malaysia reopened most of its economy today following nearly seven weeks of lockdown, but with consumer behaviour unlikely to return to normal quickly and global demand very weak, the economy is still set to contract sharply this year. The decision to end …
The closure of the border will reduce Australia’s potential GDP growth by as much as 1% for as long as it lasts. What’s more, it seems likely that net migration will be lower than before the virus outbreak even if the border reopens. And by reducing …
The announcement that Lebanon will formally seek financial assistance from the IMF should help to avoid a more disorderly outcome from the country’s current debt crisis. However, we hold reservations about parts of the rescue plan set out by the …
1st May 2020
Tiff Macklem to take the wheel This Update was originally sent to clients as a Rapid Response immediately after the Bank of Canada’s announcement on 1 st May. The confirmation that Tiff Macklem will take over from Governor Stephen Poloz when he steps down …
The partial recovery in the S&P 500 suggests a return of investor risk appetite. But commodity indices have plumbed new lows. We think a couple of points are worth making about this apparent inconsistency, the most important of which is that it is largely …
While we remain of the view that the ECB will eventually step up to the plate and increase its purchases of government bonds, concerns about Italy’s debt sustainability and its commitment to the euro mean that we think that the BTP-Bund spread will only …
The statement accompanying the Colombian central bank’s decision to cut the policy rate by 50bp to 3.25% left the door open for more easing. Given the scale of the economic hit that we expect, the policy rate will likely be lowered by at least an …
As Germany cautiously eases its lockdown, despite the significant hit to economic activity, the tight supply picture should help support prime office rents across the four main cities this year. Preliminary data for Q1 showed that office take-up across …
Investment demand likely to dwindle While a surge in ETF inflows offset weak physical demand in Q1, we don’t expect this to be repeated over the coming quarters. After all, many of the factors that have boosted the investment appeal of gold are likely to …
30th April 2020
Next week, the Texas Railroad Commission could mandate measures to curb oil production in Texas for the first time since the 1970s. However, even if they do decide to curtail output, we think that the impact on oil prices will be minimal, in part because …
Based on the seven million CERB applications so far, we estimate that households have lost up to 40% of their combined wage income since February. CERB payments alone will close less than half of the gap. The government created two programs to support …
Strong new home sales in 2019 helped the under-35 homeownership rate jump to a nine-year high in the first quarter. But, with the disruption from COVID set to cut home sales in half in the second quarter, that impressive performance will come to a halt. …
The ECB’s failure to step up its asset purchase programmes at today’s monetary policy meeting will leave investors with nagging doubts about its commitment to underwrite government borrowing during the coronavirus crisis. Eventually, however, the lack of …
Despite reasonable levels of capital ready to invest and an expected loosening in credit conditions, the sharp deterioration in investor sentiment reinforces our view that euro-zone investment activity will drop by around 40% over the rest of this year. …
China’s official and unofficial PMIs dipped in April, almost entirely owing to weak export orders. A strong performance by the construction sector provides some relief for industrial metals prices, but there was little in the data to give much of a boost …
Since the Fed had already gone all-in on its monetary policy stimulus, it was little surprise that there no major policy announcements in today’s statement. Over the next few months the Fed will continue to expand its balance sheet toward $10trn, albeit …
29th April 2020
Latin American banks are generally in good shape, but the sheer scale of the fall in output and limited policy responses to protect incomes in parts of the region mean that the rise in bad loans could be much bigger than it was during the Global Financial …
We estimate that banks will have to absorb about £50bn of loan losses from corporate and household defaults as a result of the coronavirus crisis. If anything, the risks are for even bigger losses approaching the £80bn written off during the Global …
Income support and mortgage relief will reduce the chance that people are forced to sell homes. But with immigration slumping, house prices are unlikely to recover quickly from the 5% fall that we forecast. The plunge in GDP and surge in unemployment that …
Although restrictions are set to be lifted in the coming weeks, economic activity in the euro-zone will remain significantly below pre-virus levels for a long period. Consumers are likely to be wary of crowded places, some restrictions will remain in …
Uptake of home equity lines of credit surged during the financial crisis, as households made use of existing facilities to replace lost income. But, even as the unemployment rate reaches a record high, we doubt a similar increase will occur today. …
Unlike in previous downturns, residential property has not been the root cause this time. Even so, house prices will not escape this recession unscathed. If policy support proves effective, if lockdowns hamper property sales, and if demand rebounds later …
The incentives offered by China’s provincial governments will artificially boost demand for base metals, especially lead and zinc. As a result, smelters who may have cut supply or shut altogether may instead maintain or even increase output, which will …
With the reopening of the economy to be governed by the extent to which the coronavirus is brought under control and the burden being placed upon the NHS, there is still a lot of uncertainty about how long the current restrictions will remain in place and …
While we expect to see a sharp rebound in global activity once coronavirus-related restrictions are eased, GDP in most economies will still be below its pre-crisis path even after two or three years. (See here .) In this Update , we discuss which …
With Congress ramping up its fiscal stimulus rescue package, federal debt will rise above 100% of GDP this year, not far off the record high of 108% of GDP in the aftermath of WWII . That is not a concern for the next year or two, but it does raise the …
28th April 2020
Hungary’s central bank didn’t disappoint at today’s MPC meeting in announcing its bond purchase programme and it’s clear that policymakers have shifted their attention from keeping short-term rates low to pushing down long-term rates. But unlike bond …
One consequence of the current crisis is that bad loans in Nigeria’s banking sector are likely to rise sharply. While the government would surely respond to problems at individual banks with capital injections (as it did in 2009), this would add to the …
There is some room for cautious optimism on Italy, at least for the near-term. Daily new infections are falling, the government has begun to exit its lockdown, and bond spreads are narrowing. With this in mind, we answer five key questions about how the …
The coronavirus crisis is likely to cause unemployment rates to jump by 5%-points or so across most of the region in Q2 and we think the labour market fallout could be much worse in Turkey. However, most of the rise in unemployment should prove temporary …
This morning’s decision by the Riksbank to leave its repo rate and crisis-related policy settings unchanged did not come as a big surprise. Nonetheless, it kept the door open for a rate cut, and we think that a return to negative interest rates is likely …
