The Czech central bank delivered a larger-than-expected interest rate cut at today’s MPC meeting but also disappointed those that had expected some unconventional measures to be announced to support the economy. Policymakers’ cautiousness and conservatism …
7th May 2020
The household saving rate is set to surge from 3% to a 25-year high of 11% in the second quarter, but higher savings are unlikely to prompt a splurge in spending once the restrictions on activity are lifted. We said last week that the Canada Emergency …
The surprising resilience of the Markit PMIs and ISM indices this month is more a function of the survey design than an indication that the economic hit is not as bad as the hard data suggest. The surveys are likely to do a poor job at capturing the shape …
The surge in mortgage borrowers seeking forbearance stands in contrast to a more modest rise in missed rental payments and suggests many have requested mortgage holidays as an insurance policy, rather than because of a pressing need. Accordingly, while …
China’s commodity imports have held up well so far this year, but weak external orders and subdued domestic demand point to lower volumes in the months to come . China’s exports rebounded strongly in April, rising by 3.5% y/y in US dollar terms (see our …
This morning’s 25bp rate cut by the Norges Bank, to a fresh record low of zero, took the consensus by surprise, but was in line with our forecast. That said, the Bank gave a strong signal that it has now reached the end of string of rate cuts, and we now …
While the Monetary Policy Committee (MPC) left its interest rate and quantitative easing (QE) policies unchanged this morning, it implied that an expansion of QE is imminent. This leaves our existing call that the MPC would expand QE by around £100bn at …
The lack of clear movement in the Q1 commercial property data has put other indicators into focus. These paint a much bleaker picture, particularly for the retail sector. The key Q1 commercial property data have so far held up well. Indeed, prime rents in …
Economic activity in New Zealand has started to rebound after its severe lockdown has come to an end. But there are a number of reasons why output won’t return to normal anytime soon. New Zealand moved from a severe level 4 lockdown that restricted …
Given growing worries about public health and the devastating economic impact of India’s lockdown, the current rate of inflation should not constrain the actions of policymakers. Further ahead though, the likelihood that inflation remains low will allow …
The Brazilian central bank’s 75bp cut in the Selic rate last night and the dovish tone of the accompanying statement has prompted us to pencil in a further 50bp of cuts (to 2.50%) in the coming months. Elsewhere, the Chilean central bank gave little away …
The coronavirus-induced collapse in economic activity means that state & local government tax revenues will plunge over the coming months. With balanced budget rules in most states meaning that lower revenues must be offset by lower spending, budget cuts …
6th May 2020
In light of the pandemic, our forecasts for developed market commercial property returns have been revised lower. Nevertheless, the relativities between the key markets are broadly unchanged, meaning that we still expect the US to outperform the UK and …
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 …
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 …
