The Bank of Korea’ (BoK) left rates on hold at 0.75% today and announced plans to purchase government bonds. There is scope for quantitative easing to have an impact, but there are limits to how effective it can be. As such, the role of supporting the …
9th April 2020
There is huge uncertainty about the outcome of Thursday’s OPEC+ meeting. For what it’s worth, we suspect that a large and unconditional output cut is unlikely. Even if we are wrong, we think a sizeable output cut would merely put a floor under prices …
8th April 2020
We think that the earnings of firms in the MSCI EM Index will fall sharply this year as the coronavirus pandemic reduces world trade by a fifth and commodity prices only recover slightly. But with much of this outcome probably already discounted, we think …
With the Central Bank of Chile’s policy rate at its effective lower bound, we think that its next easing measure would be a quantitative easing programme aimed at flattening the long end of the yield curve. Chile’s central bank has eased policy …
Although energy commodities have substantially underperformed global equities in recent months, we think that the returns from both will be broadly similar over the remainder of 2020 if, as we expect, risky assets in general recover. While risky assets …
The ECB is using its balance sheet aggressively to provide cheap funding to banks and support peripheral government bond markets. But there is no guarantee that banks will maintain their volume of lending to the real economy, and there is a risk that the …
Egypt’s central bank is intervening to prop up the pound, but the experience from the previous decade is that such efforts ultimately prove futile. If policymakers try to support the pound for an extended period, this risks repeating the problems that, in …
The significant increase in unemployment insurance payments included in the recent fiscal package means that many claimants could end up being paid close to what they previously earned. This suggests that the unprecedented wave of layoffs in recent weeks …
The nearly 40% peak-to-trough fall in US REIT prices points to a fall of around 5%-10% in direct real estate capital values, providing this proves to be a relatively short-lived recession. At a sector level, deeper falls for the retail sub-sector REITs …
Although real estate investment trusts (REITs) were clobbered during the recent market turmoil, their performance over short periods is often comparable to that of equites, which were also hammered. With this in mind, we expect REITs to stage a sustained …
Given the concerns about public health and the impact of the national lockdown, the current rate of inflation should not constrain the actions of policymakers. Further ahead though, the likelihood that inflation remains low will allow policy to be kept …
Export restrictions and stockpiling associated with the coronavirus may continue to support the price of Thai rice for the next few months. However, we expect that prices will fall back by the end of this year as the virus containment measures are lifted …
Although property valuations and rental prospects remain supportive, the higher risk premium associated with CEE markets means that property yields are likely to increase more in the near term and to unwind more slowly than in Western European markets. In …
Iron ore prices have been supported so far this year by China’s steel mills, which have continued to churn out metal. But with demand in China still subdued, and the virus-related disruption yet to peak elsewhere, much of this steel is being stockpiled. …
The number of business insolvencies could reach the same level as in the Global Financial Crisis over the next few years, keeping the unemployment rate high and holding back the economic recovery. The number of business insolvencies will be a key …
The coronavirus-related recession will lead to a marked increase in defaults on bank loans but, while that will hit earnings and justifies the sharp sell-off in banking stocks, the greatly improved financial health of banks means that we don’t believe …
7th April 2020
Although the valuation of the overall MSCI Emerging Markets (EM) Index is not unusually low, EM equities outside Asia and in some “cyclical” sectors now appear quite attractively valued by past standards. As in the case of developed market (DM) equities, …
Government loan guarantees will help to limit the damage to banks from defaults in the short term. But the banks will inevitably be weakened by the crisis, leaving them with more non-performing loans and less capital. This will constrain their ability to …
The Finance Ministry’s response to the coronavirus so far has been tepid and, unless it steps up, it risks turning the public health crisis into a humanitarian and banking crisis. We assume it will do a lot more. One issue is that further stimulus will …
Brexit is clearly not a priority right now. But with negotiations shelved due to the coronavirus, it is becoming increasingly likely that the government agrees to extend the transition period beyond 31 st December 2020. This is now our baseline …
While COVID-19 related delays to construction might reduce supply in some markets, we think that the drop in occupier demand will far outweigh any potential benefits to rents. The euro-zone headline construction PMI for March, revealed that the index fell …
The upcoming GDP figures for developed markets will give an indication of the damage the coronavirus was already doing by the end of the first quarter. However, even at the best of times, there are question marks over how well GDP measures activity and …
The government today laid the groundwork for lockdowns in prefectures that generate nearly half of Japan’s economic output. The accompanying fiscal package has some impressive headline numbers attached but it is small set against the scale of the shock …
The fact that almost one-third of the Swiss workforce has reportedly applied for short-time work is a sobering illustration of the scale of the virus-related economic disruption. While the headline Swiss unemployment rate remained below 3% in March, we …
Natural gas prices have reached historic lows in recent weeks, with US natural gas (Henry Hub) last week plumbing depths not seen since 1995. The near-term outlook for natural gas is bleak, but prices are likely to pick up in the second half of the year …
The Reserve Bank of Australia (RBA) didn’t announce additional measures at today’s meeting and given the easing in tensions on financial markets we think it won’t adjust policy settings over the coming months. Looking further ahead though, the case for …
An increasing number of African governments have imposed lockdowns in an effort to fight Covid-19, but we think the risk that such restrictive measures fail to contain the outbreak is bigger in the region than in other parts of the world. The science of …
6th April 2020
As growing numbers of car companies idle production in response to COVID-19, we suspect that platinum group metals (PGM) demand will slow to a crawl. What’s more, job losses and income cuts due to lockdowns will curb car sales long after containment …
The rapid spread of coronavirus over the last month has dealt another body blow to UK retail. We expected the sector to see rental falls pre-COVID, but these could now be closer to 10% in 2020, leaving levels almost 20% below their mid-2018 high by the …
3rd April 2020
Oil prices have surged by about 30% in recent days after President Trump said that a deal between Russia and Saudi Arabia to jointly cut oil production would come in a “few days”. We are sceptical that a deal will be agreed and, even if it is, we don’t …
Retail property looks most heavily exposed to the disruption from the coronavirus crisis. But not all retail is equal and different sectors will see very different impacts. In our view, neighbourhood and community centres are better placed than either …
The slump in housebuilder share prices reflects the coming collapse in housing sales, which will force builders to shut down production for several months. Indeed, we now expect housing starts to drop by 25% in 2020, with only a partial recovery by 2021. …
Activity in some large parts of Italy’s economy – including manufacturing – appears to be down by more than 50%. Even if the lockdown is relaxed in May, we think that GDP will fall by about 10% this year. The latest economic data in Italy have been pretty …
We have developed a 45-sector spreadsheet model that allows clients to design their own shutdown scenarios and assess the impact on GDP in 20 major economies. You can access it by selecting the xlsx option from the dropdown in the download button above. …
The Fed’s balance sheet has already ballooned in size to $5.7trn, from just less than $4trn before the coronavirus pandemic struck, and that’s before the introduction of its new lending facilities and purchases of corporate and municipal bonds. Using …
2nd April 2020
Many EMs are now turning to the IMF for help in dealing with the fallout from coronavirus, raising questions about whether the Fund will be able to cope with the increased in demands on its purse. While the Fund should have enough resources to bail out …
Turkey’s banks muddled through the currency crisis two years ago, but they are now in a weaker position to confront the economic and financial market fallout from the coronavirus outbreak. At the very least, the recent sharp tightening of external …
The imposition of strict social distancing controls across the continent means that economic activity in the euro-zone is likely to slump even further than we had assumed two weeks ago. For the duration of the lockdowns, economic activity is likely to be …
Claims hit record high; vehicle sales plummet This Update was originally sent to clients as a Rapid Response immediately after the data was released on 2 nd April. The surge in initial jobless claims to a record high of 6,648,000 last week, from 3,307,000 …
The coronavirus and low commodity prices are putting pressure on most African economies’ balance of payments positions and pushing many sovereigns closer to default. Besides Zambia, which is already moving towards debt restructuring, the risks are highest …
Although analysts’ expectations for corporate earnings have been revised down quite significantly since the coronavirus began to spread around the world, stock prices suggest that investors are braced for an even worse outcome. With that in mind, we think …
Euro-zone unemployment will rise sharply in the coming months but short-time working schemes will help to prevent it from skyrocketing. While this will incur significant fiscal costs, the support to household incomes should mean that consumer spending …
Single-family housing starts were in a strong position prior to the arrival of the coronavirus and builders would, in normal circumstances, look through what is anticipated to be a temporary dip in demand. But disruption to supply chains and the …
We forecast that the credit spreads of euro-zone peripheral bonds will fall back further this year and remain low in 2021 thanks to unwavering support from the ECB. But public finances will be deteriorating, especially in Italy, which raises the risk of a …
The economic recovery underway in China gives some useful pointers to what lies ahead for the rest of the world. An initial increase in activity can happen rapidly once lockdown measures are eased. But this will soon run into constraints resulting from …
Last month’s survey data for Brazil and Mexico don’t capture most of the impact of the ramping up of social distancing measures in the second half of March, but they still suggest that both economies are heading towards deep recessions. Indeed, the …
While COVID-19 will hit co-working hard, given the relative size of this subsector, we don’t think it will be large enough to impact rents in the overall office sector. WeWork has been gracing headlines again this past week as the co-working firm is …
Reports of a further leap in new claims for Universal Credit suggest that the government support designed to keep people employed isn’t working and that the unemployment rate could jump from 3.9% in January to about 5.5% in April. Our forecast that the …
1st April 2020
