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%. …
22nd April 2020
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. …
Commercial banks lowered the Loan Prime Rate (LPR) today in response to last week’s policy rate cut. With economic conditions still weak, we expect further rate declines in the coming months. The one-year rate fell from 4.05% to 3.85% (both the Bloomberg …
The gold price has benefitted lately from demand for “safe” assets and an apparent easing of deflationary fears. While we also doubt that an extended period of de flation is on the cards, runaway in flation seems just as unlikely. And unless news on the …
17th April 2020
The S&P 500’s outperformance of many benchmark indices outside the US since the outbreak of coronavirus may not be surprising, given that it was also a salient feature of much of the previous decade. While we wouldn’t be surprised if the outperformance …
The early evidence suggests that household consumption in OECD economies may not have collapsed by as much as many fear in March. But as the boost from food stockpiling fades, overall consumer spending will plummet in Q2. Using our new (downloadable) …
The latest monthly figures from MSCI confirm initial fears about the impact of COVID-19 on property. And this is only the start, figures for the coming months are likely to be worse still as the lockdown continues. As a result, we have revised down our …
The largest fall in new home buyer traffic on record in April supports our below-consensus call for a 50% q/q drop in new home sales in the second quarter. But the share of households seeing now as a good time to buy a home saw only a modest decline in …
The agreement by the G20 to allow the world’s poorest nations to suspend bilateral debt servicing will help to ease short-term balance of payments strains in much of Africa, most notably Angola, but many countries will still need comprehensive debt …
The Argentine government’s aggressive proposal to restructure its international bonds entails over $40bn in debt relief, which would go some way to restoring public debt sustainability. However, there is a significant risk that negotiations between …
The collapse in oil prices in recent months has incentivised governments to increase their strategic petroleum reserves (SPRs). However, we don’t think that it will provide a boost to prices . SPRs are used to mitigate against oil supply disruption. …
We continue to think that most EM currencies will end the year higher than their current levels, even if they face further turbulence. But we don’t expect them to recover as strongly as they did after the GFC. As we have discussed previously , emerging …
The RBI has taken further steps to help banks and borrowers weather the collapse in economic activity from the coronavirus and containment measures in another emergency announcement today. The central bank also left the door open for further loosening, …
GDP and employment are set to fall by more than we previously expected in the first half of the year. Even allowing for a stronger rebound in the second half, we now forecast an 8% drop in GDP for 2020. March’s Labour Force Survey (LFS) and the nowcast …
16th April 2020
The IMF published the first chapter of its Global Financial Stability Report on Tuesday, in which it argued that the COVID-19 crisis poses “a very serious threat to the stability of the global financial system”. In this Update , we outline five …
After a decade of relatively cautious real estate lending and steady, rather than stunning, economic growth, office development has remained fairly subdued. What’s more, for both practical and economic reasons, we see completions dropping back in the next …
Our oil price forecasts are consistent with a 30% drop in Pemex’s revenues this year, which suggests the firm will need additional state support to service its large debts. However, with the coronavirus crisis intensifying, we’re not convinced that …
The central bank in the Philippines (BSP) today cut its policy rate by 50bp at an emergence meeting, and with economic activity in the country collapsing, we doubt this will be the last move from the Bank. Today’s decision came unannounced, but it was no …
Regional banks in Japan will face mounting loan losses due to the virus outbreak. But as their linkages with other financial institutions are small, this won’t precipitate a financial crisis. The risk posed by the virus to the liability side of Japanese …
The scale of job losses and falls in incomes caused by coronavirus containment measures across the world – but particularly in the US and the Gulf – is likely to weigh heavily on remittance inflows into Asia. A drop in remittances would increase the risk …
Although retailers in Sweden remain open, early indications suggest that the Stockholm retail sector will still be hit hard in Q2. In fact, we think that the virus outbreak will only accelerate falls in retail rents already expected as a result of the …
The collapse in both exports and imports in March highlights the extreme weakness of external and domestic demand. What’s more, the worst is yet to come as lockdowns to contain the spread of the coronavirus remain in place in both India and abroad. …
We suspect that the Bank of Canada will soon have to expand its newly announced corporate bond purchases, given that under current plans they would amount to just 0.4% of corporate debt outstanding. As the policy rate is already at what the Bank thinks is …
15th April 2020
Lockdowns have proved successful at limiting the spread of coronavirus in the likes of China, Korea and the Czech Republic, but they are likely to be less effective in poorer countries – notably much of Africa, India and Bangladesh – where households are …
The damage to Turkey’s economy from the coronavirus outbreak has led to suggestions that the government may turn to the IMF for a financing package, but the political backdrop means that this would almost certainly be a last resort. Policymakers would …
Adept handling of the current crisis has helped President Moon’s party to emerge from today’s National Assembly election with a majority, which should help breathe new life into his reform agenda. While the near-term economic outlook will depend on how …
The Bank of France floated the idea recently that the ECB could use “helicopter money” to channel funds to companies after the worst of the current crisis has abated. While this idea has some attractions, there would be substantial political and practical …
Different countries will adopt different approaches to ending shutdowns but a common theme is likely to be that restrictions are phased out gradually by sector and, perhaps, region. The extent to which this is accompanied by new mass testing programmes …
Australian banks have passed through the RBA’s recent cuts to some but not all of their lending rates and have tightened lending standards a bit. With banks now in better shape than during the global financial crisis, we think that lending standards won’t …
The People’s Bank (PBOC) has taken yet another step to help banks and borrowers weather the ongoing economic weakness and is preparing to lower interest rates further in the coming months. The PBOC has just cut the one-year rate at which it lends to banks …
The Paycheck Protection Program (PPP) of forgivable small business loans has come too late to prevent the huge initial wave of layoffs, but will be more useful in helping less directly affected firms stay afloat while limiting the rise in unemployment. By …
14th April 2020
It has become clearer to us that the economic legacy of the coronavirus crisis will last a number of years. Our new forecast is that the economy will be about 5% smaller (£100bn) at the end of 2022 than would have been the case if coronavirus didn’t …
The deal struck by OPEC and other oil producers to cut oil output sharply over the coming months will help to put a floor under oil prices, but the reduction in output simply adds to the reasons to expect a sharp downturn in the Gulf economies this year. …
The unprecedented 9.7m bpd output cut announced by OPEC+ will merely reduce the oversupply of oil in the second quarter. But assuming full compliance, and an involuntary drop in North American production, the market could fall into a deficit later in the …
While COVID-19 has forced consumers in southern Europe to shop online, we think that e-commerce penetration will remain lower for structural reasons, which is one reason why prime retail rents in these markets will be more resilient in the long-term. …
After collapsing in January and February, China’s commodity exports stabilised last month. But with economic activity outside China now in the doldrums, this is unlikely to last. Meanwhile, China’s imports of crude oil and copper remained reasonably …
Bank Indonesia (BI) today left interest rates unchanged at 4.5%, but the cut to the reserve requirement ratio (RRR) and dovish comments in the press conference suggest that further rate cuts are likely. The decision was a surprise. Having cut rates at its …
There is no doubting that governments have generally pulled out all the stops in announcing big fiscal stimulus programmes. But announcing them is one thing; quickly getting the money to where it is needed is quite another. There is a risk that logistical …
