Against a backdrop of stubbornly-low inflation and rising unemployment, we now think that the RBA will launch quantitative easing (QE) in 2020. Here, we consider the implications for Australia’s assets. Assessments of the impact of QE elsewhere are not …
7th November 2019
We expect most major EMs to loosen fiscal policy further next year. Weak public finances mean that a few major EMs, notably Brazil and South Africa, will need to tighten policy. But aside from Argentina, the risk of messy sovereign debt crises is …
Headline consumer price inflation is likely to have risen above the RBI’s 4.0% target for the first time in 15 months in October due to another jump in food inflation. This won’t dissuade the central bank from loosening policy further in the near term. …
The National Bank of Poland (NBP) left interest rates on hold at 1.50% today and with external headwinds mounting and the economy likely to slow sharply over the coming quarters, calls for interest rate cuts are likely to grow. But we think that …
6th November 2019
Although occupier demand appears to be holding up in Germany, a combination of structural and cyclical factors has weighed on retail rents. And with meagre economic growth expected until at least the middle of next year, the prospects for retail rents are …
We think that markets are underestimating the chance of the Bank of Canada cutting interest rates in December, but we would change our view if the US and China agreed to roll back tariffs meaningfully. Based on the Bank’s forecasts alone, it wouldn’t have …
More EMs’ income levels have fallen relative to the US’s than have risen this year, the first time this has happened since the 1990s. This is likely to be a sign of things to come in the 2020s. There are lots of ways of defining catch-up growth, but our …
The fiscal package presented to Brazil’s congress yesterday shows that the government is not resting on its laurels after its successful pension reform. However, the good news on fiscal reform already seems to be priced in, suggesting that there’s little …
The Bank of Thailand (BoT) cut its key policy rate to 1.25% today, and with economic growth set to remain weak and concerns about the strength of the baht mounting, we think the central bank will loosen policy again next year. Today’s decision was …
This Update clarifies the tweaks to our forecasts for the economy and the financial markets triggered by the delay to Brexit to 31 st January and the recent changes to our forecasts for the global financial markets. Although the numbers are slightly …
5th November 2019
One reason to think that US equities will outperform US corporate bonds over the next couple of years is a larger-than-average wedge between their valuations. Comparing the valuations of US equities and US corporate bonds is not straightforward. One …
With Brexit delayed and a general election ahead, all our Brexit scenarios remain on the table. However, recent developments mean that, under each scenario, we think that all-property capital values will fall by less than previously expected, but most …
The Fed’s latest Senior Loan Officer survey points to a continued drop off in demand for commercial and industrial loans, consistent with business equipment investment contracting again in the fourth quarter. And while looser policy has prompted a surge …
Economic growth in Finland outpaced the euro-zone average before the global financial crisis but has been broadly in line with it in recent years. We think that this trend will continue and that Finnish GDP growth will slow to around 1% in 2020-2021 – a …
Spain’s fourth general election in as many years looks likely to result in further political stasis, but we doubt that this will have a detrimental effect on the economy. Nevertheless, weaker consumer spending and investment are likely to cause GDP growth …
Bank Negara Malaysia (BNM) left its policy rate unchanged at 3.00% today, but with growth set to slow sharply over the next few quarters and inflation likely to remain subdued, we think the central bank will ease policy again early next year. 16 of the 25 …
The RBA reiterated its view that the economy had reached a gentle turning point when it left rates unchanged today. However, we think that the Bank’s forecasts for GDP growth and the labour market remain too optimistic and we expect the Bank to cut rates …
After keeping interbank rates broadly stable for most of this year, the People’s Bank (PBOC) is starting to take more direct steps to push down borrowing costs. We think this could mark the beginning of a series of PBOC rate cuts. Today, the PBOC cut the …
The EM manufacturing PMI stabilised in October and the breakdown provides further evidence that the downturn in EM export growth may have bottomed out. That said, any recovery is likely to be slow going. Having risen to a six-month high in September, the …
4th November 2019
Colombia’s economic recovery since 2017 has been in large part due to strength in private consumption, but we think it will likely slow in the coming quarters. This is one reason why our 2020 growth forecast sits at the bottom of the consensus range . …
The upcoming sale of a stake in Saudi Aramco would probably make the government less inclined to implement fresh austerity. The long-term impact on the Saudi economy will depend on whether this leads to renewed impetus behind reform, although we are …
Manufacturing PMIs for October suggest that global industry remained weak at the start of Q4. However, we take some comfort from the fact that, at the world level, the surveys have stopped deteriorating. The release of Markit’s global manufacturing PMI …
1st November 2019
Office-to-residential conversions in the Nordic capitals have started to lose their appeal given the pick-up in office capital values and softening in house prices. However, we don’t think that this poses a major risk to our forecast for relatively strong …
The Riksbank appears determined to raise interest rates into an economic slowdown. While higher policy rates may provide some support for the Swedish krona, we still think that it will continue to depreciate. To the surprise of most analysts, ourselves …
There was a marked divergence between China’s October official and unofficial PMIs, which makes it difficult to gauge the underlying strength of the manufacturing sector. The rise in the Caixin PMI suggests that China’s economy may have started Q4 on a …
The Brexit extension and general election leaves the housing market outlook even more uncertain than a week ago. What’s more, given the vast distance between the two main political parties’ approach to the housing market, the December election could prove …
The number of vacant single-family homes for sale has dropped 25% since the start of 2012. But the situation is far worse at the cheaper end of the market, where the inventory of homes priced under $250,000 has halved over the same period. That will …
31st October 2019
Output cuts by Chinese smelters mean that the price of tin is unlikely to fall further in the coming quarters. But with growth in major consumers set to slow and tin particularly exposed to “List 4” US tariffs on China, we see little upside for prices in …
Further progress towards the establishment of what would be the world’s biggest trade deal, the Regional Economic Comprehensive Partnership (RCEP), is expected over the weekend. Given the protectionist threat facing Asia, a deal would provide a boost to …
Turkey’s economy has made a strong recovery from its recession last year, but investment has continued to fall and is unlikely to make a quick turnaround over the next couple of years. GDP rose by 1.6% q/q in Q1 and 1.2% q/q in Q2 (see Chart 1), supported …
With England and South Africa battling for the right to lift the Webb Ellis Cup in the Rugby World Cup final this weekend, we’ve been pondering which of the two economies would come out on top in a head-to-head, while we think England will take the …
The statement accompanying last night’s Copom meeting gave a clear signal that there will be just one more 50bp interest rate cut in the current cycle (to 4.50%), which should temper expectations in the market for more aggressive rate cuts in the next few …
The Bank of Japan left policy rates unchanged today and reiterated its readiness to ease policy if required. However, the background material to its “re-examination of economic and price developments“ was fairly upbeat. And by anticipating a further …
The Fed cut interest rates for a third time as expected today, to between 1.5% and 1.75%, but changes in the statement suggest it is trying to dissuade the markets from pricing in any further loosening. Nevertheless, we still anticipate that a further …
30th October 2019
While the Bank of Canada kept policy unchanged today, it cut its growth forecasts and delivered a more dovish policy statement. This supports our view that the Bank will cut its policy rate before long. Alongside its decision to keep the policy rate …
The yield of 10-year government bonds in Greece is now only slightly above that of 10-year government bonds in Italy. Given Italy’s comparatively poor growth and debt dynamics and greater political risk, we think that it is only a matter of time before …
Today’s ‘mini-budget’ was a painful admission that South Africa clearly faces a slowly-unfolding fiscal crisis. The gloomy tone may be an attempt to push for unpalatable economic reforms. But today’s speech makes a negative outlook from Moody’s – which is …
A general election on 12 th December may seal the fate of Brexit but could also have some other important implications. The economy and financial markets may either have to cope with a combination of a hardish Brexit and business friendly policies under …
29th October 2019
Globalisation has peaked. It may stall over the next decade, but a period of de-globalisation is increasingly likely. If this is driven by new technologies, it will not be bad for the world economy. But it could take a more malign, policy-driven, form. If …
Ecuador’s government has successfully stabilised the debt-to-GDP ratio, and it remains committed to IMF plans to cut the public debt ratio to just 30% of GDP. But the president’s climbdown in the face of protests has highlighted the fragility of the …
While the risk of a no deal Brexit has diminished, lingering uncertainty and structural headwinds are likely to put downward pressure on prime retail rents in Dublin over the next two years. After holding up relatively well compared to its euro-zone …
The weakness in business investment since the EU referendum has been concentrated in IT & machinery, transport and non-residential buildings so those areas may enjoy the biggest rebound if there is a Brexit deal, but they would also continue to suffer the …
South African’s finance minister will try to use tomorrow’s budget speech to put a positive spin on a very worrying situation. In striking a compromise between the need to boost the economy with efforts to contain a widening budget deficit, he is unlikely …
We estimate that the participation rate will rise by around 0.35ppt per annum over the next couple of years. That means that the economy needs to create around 300,000 additional jobs per annum to absorb the expansion in the labour force from a higher …
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament on whether to hold a general election. Although Parliament tonight voted against holding a general election, it seems likely that MPs will soon change …
28th October 2019
Our Tracker suggests that the impact of oil production cuts caused the Saudi economy to contract in Q3. And output probably fell at a steeper pace in Q4. Saudi Arabia’s quarterly GDP data are published with a significant delay – figures for Q3 won’t be …
Investors’ worries about South Africa’s power sector often focus on Eskom’s growing debts. But a recent government report has also underlined the risk that the faltering grid will struggle to meet demand over the coming decades, prompting power shortages …
Yield curve un-inversion lowers recession risk With the yield curve un-inverting, our composite model indicates that the probability of a recession in 12 months’ time has fallen to 11.7%, from a recent peak of more than 20%. (See Chart 1.) Nevertheless, …
There is still a lot of uncertainty following Alberto Fernández’s widely-expected victory in Argentina’s presidential election, but one point we would stress is that a large debt write-down will ultimately be required during Mr. Fernández’s presidency. …
