Most of the fresh spending in PM Abe’s fiscal package will not provide meaningful support to employment. But as was the case during the financial crisis, the government’s employment adjustment fund should help ensure that unemployment doesn’t spike as …
28th April 2020
We suspect that the recent underperformance of MSCI’s UK Index relative to its USA Index will peter out when the world starts to get back to normal after coronavirus. The MSCI World Index includes mid- and large-cap equities in 23 developed countries, …
27th April 2020
The shape of the economic recovery from the coronavirus crisis mainly depends on the spread of the virus, the effectiveness of the policy response and the extent to which consumers and businesses change their behaviour. This Update sets out how and why …
Relative to its performance in the GFC, the office sector should be fairly resolute in this downturn. However, the rapid growth of flexible office space poses a downside risk in some markets. What’s more, if the problems facing WeWork were to turn into a …
Brazil’s economy is better placed to withstand a twin political and economic crisis than it was during the Dilma impeachment of 2015-16. But the brewing political mess could leave long-lasting damage if it prevents policymakers from acting quickly enough …
Egypt has become the latest emerging market to turn to the IMF for assistance and one of the priorities for the Fund is likely to be for the central bank to loosen its grip on the pound. That said, there is unlikely to be a repeat of the 50% fall in the …
The RBI’s new special liquidity window should help ease redemption pressure on Indian mutual funds, which have come under strain since Franklin Templeton’s announcement on Thursday that it has been forced to close six of its debt schemes. But another …
The Bank of Japan today scaled up its measures to ease corporate and household financing strains significantly. However, the Board didn’t cut the policy rate even though all members expect a slump in activity. With our forecasts not miles away from the …
OPEC’s allies recently agreed to cut output from May. While compliance with quotas is usually sub-par, we think that adherence to the quotas will be greater this time, in part because oil prices are so low . Earlier this month, OPEC+ agreed to cut oil …
24th April 2020
While there are fewer concerns that this property downturn could bring problems for lenders than during the GFC, financial risks remain, especially on the landlord side. In past recessions, occupiers and landlords have always suffered . Firms cut jobs or …
Despite imposing less draconian measures than elsewhere, the economic impact of Sweden’s ‘lockdown’ is not far short of that in France, for example. Accordingly, Sweden’s experience pours cold water on hopes that lifting restrictions in other countries …
The Russian central bank abandoned its cautious approach to the coronavirus outbreak by cutting its key policy rate by 50bp, to 5.50%, today and the accompanying communications gave the clearest possible indication that further easing is on the cards. …
Jobless claims have reached 26 million, but by the end of last week the share of apartment tenants making a full or partial rental payment in April was down by just four percentage points compared to usual. That demonstrates tenants are still incentivised …
Remittances held up well during the Global Financial Crisis but the scale (and type) of job losses in the current crisis mean that they are likely to fall sharply in the coming months. A drop in remittances would dampen economic recoveries in the likes of …
We think that, for the industrial sector, any short-term gain from an increase in online shopping will be outweighed by the plunge in demand and subsequent collapse in global trade. While the industrial sector appears to be more insulated from …
Vietnam has started to lift some of the shutdown measures that were introduced to slow the spread of the coronavirus, but this won’t prevent the export-dependent economy from slowing sharply this year. The decision to relax some restrictions on the …
PBOC continues to align its policy rates This Update was originally sent to clients as a Rapid Response immediately after the Targeted Medium-term Lending Facility was cut on 24 th April 2020. The People’s Bank (PBOC) has cut rates on yet another one of …
The unemployment rate will surge to more than 15% in April but, unlike in a normal economic cycle, the high proportion of people on a temporary layoff leaves us hopeful that rate will come down relatively quickly, falling back below 7% by year-end. The …
23rd April 2020
As expected, after a dreadful month in March, the Flash PMIs for advanced economies got a whole lot uglier in April. While we suspect that they are not picking up the full scale of the declines in activity, the PMIs should become more useful when it comes …
The uneven economic impact of the coronavirus disruption suggests that property values in Southern European markets will be hit hardest and may take longer to recover than elsewhere in the euro-zone. The data for the first quarter has started trickling …
Most countries in Emerging Asia are net importers of oil, so would usually stand to gain from a big drop in prices. But that benefit won’t materialise until consumer spending recovers. For Malaysia, which is the region’s only major net oil exporter, the …
We suspect that banks’ share prices will rebound a bit from here, after falling a long way. Nonetheless, we don’t think that banks will outperform other sectors significantly, or for long, even if the global economy starts to recover and equity markets …
The government is encouraging manufacturers to return production of components from their overseas subsidiaries to Japan. Given the large scale of production that is now located abroad, a major reshoring of the industry isn’t realistic. And even if firms …
Saudi Arabia and the other Gulf countries should be able to weather the collapse in oil prices without abandoning dollar pegs, and Russia will still run looser fiscal policy this year than last. But the rout will cause major strains elsewhere. A debt …
22nd April 2020
The plunge in global oil prices has raised the risk of much steeper contractions in output in African oil producers, sharper currency falls, sovereign debt restructurings and problems at local banks. Among the major economies in the region that we cover, …
The plunge in oil prices won’t push Russia’s economy into a financial crisis, as it did in 2008/09 and 2015. But the government is likely to run its largest budget deficit since the late 1990s, which will limit the size of the fiscal package to support …
Pressure is mounting on Saudi Arabia’s dollar peg and, while there is some opaqueness over the full size of the Kingdom’s FX reserves, we estimate that the authorities could prop up the riyal at current ultra-low oil prices for more than five years. This …
The Turkish central bank responded to signs of a clear downturn in the economy by cutting interest rates by a further 100bp today but, with downward pressure on the lira continuing to mount, we think that the scope for further monetary easing is limited. …
The plunge in oil prices is yet another drag on Mexico’s freefalling economy, and may hasten a move by Pemex to restructure its external debts. The government’s lacklustre response to the economic crisis is forcing Banxico to do the heavy lifting to …
The ECB’s record pace of asset purchases is proving insufficient to bring bond spreads down. We think that it will need to step up the pace of purchases further, as well as expand the overall size of the Pandemic Emergency Purchase Programme well beyond …
While gold has rallied over the past month, we don’t think that it will continue to outperform most other asset classes in the way that it did in the aftermath of the Global Financial Crisis (GFC). On the contrary, we think that the GSCI Precious Metals, …
Proposals for a major, joint fiscal initiative are under discussion again ahead of tomorrow’s EU leaders’ meeting. But the gulf between those in favour and against looks too large to bridge. As a result, the ECB will have no choice but to expand its …
Due to the spread of COVID-19, it is increasingly likely that investment activity will slump to a record low level in the second quarter. Even though we expect a pickup in the second half of the year, annual investment totals are still set to be around …
Plans to ease containment measures have raised fears of a second wave of coronavirus to come. In some ways, the world economy would be better prepared to deal with it. But the development of testing and tracking will be crucial in determining the extent …
Taiwan’s success at containing the coronavirus outbreak at home will not prevent the economy from falling into a huge recession this year. We think the economy will shrink by 5% this year, which would be by far the biggest contraction on record. Taiwan …
The 10% of GDP emergency fiscal response announced by South Africa’s president last night will help to alleviate some of the strains in the economy caused by the lockdown. But with this coming one month after lockdown started, a lot of damage will already …
The impracticality of social distancing for many will make it hard for countries in South Asia to contain the coronavirus. Failure to contain the disease would have dreadful humanitarian consequences and would also lead to much slower economic recoveries …
The RBNZ’s decision to lift LVR restrictions is unlikely to provide much support to house prices in New Zealand. We think that the sharp decline in home sales and confidence together with the likely drop in migration will result in prices falling by 12%. …
President Trump’s tweet announcing a temporary ban on immigration is most likely just a short-term tactic to fire up his base. But it is hard not to see this as the beginning of an even more nativist post-pandemic policy agenda that the Trump …
21st April 2020
Whether negative or not, oil prices are now far below operating breakeven costs for many oil sands projects. That means firms are slashing production, and we doubt this lost output will be quick to return. Yesterday the price of WTI for delivery in May …
The spot price of WTI turned negative yesterday in large part owing to the nature of trading in the futures market. That said, the price slump has some fundamental underpinning as demand is very weak. We expect that storage constraints will keep the price …
A rising LIBOR OIS spread points to nervousness on interbank funding markets. But for the mortgage market, any future credit crunch is more likely to come from lenders’ concerns about the economy, house prices and risk appetite, than a dislocation in …
While emerging markets suffered large net portfolio investment outflows in March, the very latest data suggest that the pace of outflows eased in the first half of April. Meanwhile, it appears that other forms of capital flows – notably FDI and banking …
The collapse in oil prices has led to renewed pressure on dollar pegs in the Gulf and, while there could be some positive effects on balance sheets from devaluations, the costs would be politically unpalatable. The upshot is that we think that …
The government’s reluctance to provide significant financial support for firms and households during lockdown means that non-performing loans are likely to surge. One legacy of the coronavirus in India is therefore likely to be an impaired banking sector …
Vale, the world’s second largest iron ore producer, has cut its iron ore output guidance for 2020 by nearly 30m tonnes. Although significant, we don’t think it will be enough to push the market into a deficit. Therefore, we are sticking with our forecast …
20th April 2020
The scale of the Fed’s purchases of Treasury securities in the first few weeks of the pandemic, in addition to the sheer size of the broader expansion in its balance sheet, arguably suggests that the Fed is not just monetising the deficit, but has …
Output should start rising again in most countries in Asia in the third quarter of the year as lockdown measures are eased. But economic recoveries will soon run into constraints resulting from subdued demand and impaired balance sheets. A full recovery …
Many countries have now announced wage-subsidy programmes to prevent widespread layoffs. Household incomes will still be severely squeezed by pay cuts. Nonetheless, limiting the rise in unemployment will help countries to get up and running again once the …
The detailed breakdown of China’s Q1 GDP data that was published over the weekend shouldn’t be taken completely at face value. But it still provides a useful framework for gauging the relative performance of different sectors amid the COVID-19 disruption. …
