We don’t think that asset valuations in general have risen to unsustainably-high levels, even though many are now far above their long-run averages. So we see no need for major corrections in asset prices. It is often argued that an asset’s equilibrium …
28th October 2019
Recent construction delays to Nordstream 2 mean that the Russia-EU gas pipeline is likely to miss its scheduled completion date of December 2019. While we suspect that surging supplies of LNG from the US and Australia would limit any short-term price …
25th October 2019
Consumer demand to remain in the doldrums Gold imports by China and India fell once again in September. With the Chinese economy set to slow and Indian consumer preferences slowly drifting away from gold , Asian physical demand is likely to remain weak …
The Russian central bank’s decision to opt for a 50bp rate cut today (to 6.50%) and the dovish tone of the accompanying statement support our view that the easing cycle has further to run. As things stand, we expect the one-week repo rate to be lowered to …
While protests have spread across several EMs, most notably Hong Kong, parts of Latin America and Lebanon, there is no mechanical link between unrest and economic growth and asset prices. As it happens, large protests in emerging markets are comparatively …
Flash PMIs for October indicate that underlying momentum in advanced economies has continued to weaken at the start of Q4. The weighted average of the US, euro-zone and Japan composite PMIs imply that the index for developed markets as a whole fell in …
24th October 2019
The political benefits of Boris Johnson’s Brexit deal may also prove to be its economic downsides. If the deal is eventually passed in its current form there would effectively still be a chance of something like a no deal Brexit in December 2020. If that …
Outgoing President Mario Draghi defended the ECB’s decision last month to introduce a raft of measures and downplayed the Governing Council’s divisions. As euro-zone growth is set to remain weak and any fiscal stimulus is likely to be small, we think that …
September’s plunge in inflation alongside the removal of US sanctions gave the Turkish central bank the green light to deliver another larger-than-expected interest rate cut today and the easing cycle has a little further to run in the coming months. But …
The US Treasury is due to report soon which of its major trading partners, if any, have been manipulating their currencies for unfair advantage. But regardless of what the US Treasury decides, the protectionist threat from the US is unlikely to go away. …
Having left its repo rate on hold at -0.25% this morning, we do not doubt the Riksbank’s clear intent to raise it to zero in December. However, with economic growth set to slow in 2020, and underlying price pressures to stay subdued, we think that …
Bank Indonesia (BI) cut interest rates again today and signalled that its main priority remains supporting the struggling economy. However, if the rupiah starts to drop back against the US dollar over the coming months as we expect, then we could be …
Chilean policymakers’ decision to cut their key interest rate by 25bp yesterday and the dovish tone of the accompanying statement supports our view that the easing cycle has further to run. We continue to expect 25bp of cuts by year-end, and a further …
Equities in the euro-zone have outperformed those in the US since early October. While we expect this trend to continue, we think that both will fall in the rest of this year, as global growth slows further. While both the MSCI EMU Index and the MSCI USA …
Governments that have been elected during episodes of severe market stress and have managed to turn things around have done so by securing some form of bailout package and announcing a credible reform plan. But they have also usually benefitted from …
23rd October 2019
Left-wing Peronist Alberto Fernández is widely expected to win Sunday’s presidential election, and we think that his tenure would be marked by more accommodative policy, persistently high inflation, further large currency falls and a large debt …
We think that the recent weakness in emerging market (EM) currencies will continue during the rest of 2019, as a weaker global economy triggers a fresh bout of risk aversion. In 2020, we think that the renminbi and the currencies of other Asian EMs with …
The weakness in Russian retail sales looks close to bottoming out, but any turnaround will be modest. This is one reason to think that the overall recovery in GDP growth will be weak and that the central bank’s easing cycle is likely to be deeper than …
As valuations have improved this year and investors have become willing to accept lower yields, demand for quality Paris assets has ballooned, most likely driving a record year for French investment. This has begun to push prime yields lower and we now …
While we think that there is still a bit more scope for the Norwegian krone to fall against the euro, we expect the currency to bounce back over the next couple of years, as the country’s terms of trade improve. For all the talk about krone weakness, its …
After small net inflows in Q2, we estimate that emerging markets (EMs) experienced net outflows in Q3. With the recent detente in the trade war unlikely to continue, further capital outflows are likely in the coming quarters. Capital flows play a major …
There have been suggestions that the Bank of Korea (BoK) might soon need to adopt some of the unconventional policy measures that are being tried by the world’s major central banks. However, evidence from other countries that have tried quantitative …
We estimate that a fiscal stimulus equivalent to 1.5% of GDP would still be consistent with maintaining Australia’s AAA-rating. Unfortunately, fiscal policy probably won’t come to the rescue, leaving the onus to support demand on the RBA. The slowdown in …
This Update was originally sent to clients as a Rapid Response immediately after the votes in Parliament on 22 nd October on Boris Johnson’s Brexit deal. Tonight’s votes in Parliament on Boris Johnson’s Brexit deal suggest that Brexit will probably be …
22nd October 2019
Some leading indicators of house price growth, such as the size of mortgage approvals and months’ supply of new homes on the market, are pointing to an acceleration in growth to around 5% y/y by the end of the year. But a slowing economy and tightening …
The financial woes of WeWork have cast doubts over its long-run future and, given the reliance of the London office market on the co-working trailblazer, on the property outlook. In our view, this is a real concern, but it is unlikely to be the hammer …
21st October 2019
Early indicators suggest that GDP growth stabilised across Emerging Asia last quarter. While we think the worst is now over for the region, the recovery will be slow going. Countries in Emerging Asia are among the first in the world to publish national …
This Update analyses the key Brexit events in Parliament this week and highlights at what point we would be able to conclude that a Brexit deal is either done or dead. As such, the next week or so will be pivotal in determining whether the pound takes …
As things stand, there are reasons to think that the protests that erupted in Chile in recent days will have a relatively small impact on the economy and financial markets. The central bank is likely to look through the political turmoil and cut the …
Given the widespread use of the US dollar in international trade and finance, policymakers outside the US have suggested that the dollar’s appreciation is partly to blame for the slowdown in the world economy. While US exchange rate moves do exert …
The protests in Lebanon (and policymakers’ response) underline that pushing through the austerity needed to stabilise the public finances is politically impossible. With large debt repayments due over the next year, a crunch point is approaching fast. A …
The success of environmentalist parties in yesterday’s Federal Elections in Switzerland echoes similar gains elsewhere in Europe in recent months. But given Switzerland’s consensus-based political system, the result is unlikely to cause any major change …
This Update analyses the key Brexit events in British Parliament this week and highlights at what point we would be able to conclude that a Brexit deal is either done or dead. As such, the next week or so will be pivotal in determining whether the pound …
Our best guess is that vehicle production in the euro-zone will stabilise at around its current level over the next year. If so, the sector would subtract 0.2% from GDP this year, but neither add to nor subtract from GDP in 2020. Regardless, the euro-zone …
The detailed breakdown of China’s Q3 GDP data released today shows that a slowdown in industry overshadowed strength in the construction sector. The headwinds to the construction sector should only get stronger in the coming quarters. GDP growth edged …
The newly-revamped Loan Prime Rate (LPR), the reference point against which banks now price loans, was unchanged in October. This will only increase pressure on the PBOC to ease funding costs for banks in the coming months. The one-year LPR was unchanged …
This Update was originally sent to clients as a Rapid Response immediately after the vote on 19 th October on Boris Johnson’s Brexit deal. The decision by Parliament to essentially postpone a meaningful vote on Boris Johnson’s Brexit deal until after a …
19th October 2019
We expect the upturn in consumer confidence in Greece this year to feed through to a pick-up in retail sales growth, supporting retailer demand in Athens. Coupled with further yield falls, Athens high street capital values are set to significantly …
18th October 2019
We expect the rally in corporate bonds in the US, UK and euro-zone to unwind a bit in the rest of 2019 as global growth slows further. Next year, we think that corporate bonds in the US and the UK will continue to struggle, but those in the euro-zone will …
We expect weak global growth to keep a lid on UK tourist flows. And with yields most likely to continue to rise, hotel capital values are likely to fall over the next few years. A weak global economy and ongoing Brexit uncertainty weighed on tourist flows …
The shift in market expectations in Brazil towards much larger interest rate cuts by early 2020 now looks overdone. However, expectations for the Selic rate over a longer time horizon (2-5 years) look too high . There is a growing debate about how far …
17th October 2019
The Conservatives are sticking to their commitment to balance the budget if elected, but over the next 18 months the party’s deficit proposals look very similar to the Liberal’s. While the high overall public debt burden has been touted as a reason to …
Though government bond yields have rebounded over the past week, inflation compensation remains near record lows in the US and the euro-zone. In our view, this is unlikely to persist, especially in the US, which is one reason why we expect Treasury bond …
This Update was originally sent to clients as a Rapid Response immediately after the announcement on 17 th October that the UK and EU had agreed a Brexit deal. If the Brexit deal agreed by the EU and UK earlier today passes through Parliament, then there …
The outperformance of Budapest’s office sector is coming to a close, but we still expect the retail and industrial sectors to beat their CEE peers in terms of total returns. Hungary’s economy has weathered the euro-zone slowdown so far, but we think that …
If a Brexit deal is signed and ratified then sterling could rise further over the next few weeks or months, from $1.28 to $1.35 (€1.17). If interest rates were then to rise, sterling could hit $1.40 (€1.22) in 2021. At the end of July, when the chances of …
16th October 2019
Over the past couple of years buyers of high-end homes in New York City have been hit by higher taxes, and can no longer hide their identity. That has cut home buyer demand and house prices, and may lead to an increase in rental supply. But, at the same …
The Fed’s move to begin purchasing $60bn of Treasury bills per month will eventually push the size of its balance sheet back up to $4trn over the coming year, not far below its $4.2trn peak. However it would be wrong to view this as a complete …
South Africa’s retail sector didn’t perform as badly as the mining or manufacturing sectors in August, but there is still a growing risk the economy contracted over Q3 as a whole. Figures released this morning showed that South African retail sales growth …
