The political situation in Lebanon shows little sign of improving and the risk of a disorderly devaluation, sovereign default and banking crisis are rising by the day. Our sense is that the authorities will eventually turn to the IMF, probably before …
4th December 2019
Recent payroll employment growth is likely to be revised down in the annual revision early next year, which is unquestionably a negative. But the flip-side is that productivity growth must have been stronger than the current data suggest. As we’ve flagged …
Our baseline assumption is that the returns in common currency from mid- and large-cap equities will be similar in the euro-zone and the US in 2020, after a decade in which those in the US have outperformed substantially. The elections there next year, …
President Trump’s decision to impose tariffs on imports of steel and aluminium from Brazil and Argentina is likely to have little impact on prices. And while this could be interpreted as a sign that tariffs on the remaining “List 4” imports from China …
While there is likely to be more turbulence ahead for the Chilean peso, the big falls are probably behind us. Indeed, with the central bank intervening and copper prices likely to rise, we think it’s more likely than not that the peso will strengthen by …
Given our pessimistic view of China’s economy and the trade war, we think that the underperformance of developed market (DM) companies exposed to China will continue. Admittedly, the MSCI index that tracks those firms has actually done pretty well this …
Concerns about foreign currency debts in emerging markets have flared up again in recent weeks, but we think that the worst of these fears are probably overdone. FX debt burdens in most EMs have fallen as a share of GDP in recent years and balance sheet …
3rd December 2019
While the resignation of the Finnish Prime Minister today is unlikely to lead to a collapse in government, elections may well take place before 2023, when they are due. If so, the nationalist Finns Party could end up in power which could lead to fiscal …
With mortgage rates set to remain close to their current low level over the next couple of years, refinancing activity will be strong in 2020. Tighter credit conditions will constrain demand to some extent, but a decline in the number of households who …
Our economic forecasts for Italy are based on the assumption that the coalition government holds together, at least for the next two years. But in our view, the economic impact would be small if it fell apart. Bond yields would probably rise, but not as …
The sharp contraction in South African output in Q3 strengthened our view that trend growth in the country is flagging, and that GDP will only rise by a meagre 0.5% in 2020. Figures released today showed that South African GDP contracted by 0.6% in Q3 at …
The RBA turned more optimistic when it kept rates unchanged today but we think that further stimulus will be required before long. We reiterate our long-held view that the Bank will cut rates to 0.25% next year and will launch quantitative easing in the …
The IMF has suggested that the Bank of Japan could target shorter bond yields in order to steepen the yield curve and support the profitability of financial institutions. But the benefits to insurance firms and pension funds wouldn’t compensate for the …
The November manufacturing PMIs point to diverging prospects for EM manufacturers at a regional level, with conditions improving in most of Emerging Asia but deteriorating in Emerging Europe. The EM manufacturing PMI stayed at 51.0 in November for the …
2nd December 2019
Manufacturing PMIs for November suggest that industrial activity strengthened in most regions. This provides another welcome sign that the global industrial downturn may be bottoming out. In November, the global manufacturing PMI picked up slightly from …
We doubt that recent developments in Hong Kong will prevent the US and China reaching a “phase one” trade deal in the coming weeks. But it would do little to boost global growth. And given the fundamental differences between the two sides, tensions will …
Despite President Trump’s frequent complaints about the strength of the dollar, its valuation is not especially high in our view and is unlikely to prevent it from rising further in the next couple of years. Admittedly, the US currency has risen a long …
China’s official and unofficial PMIs rose in November, suggesting that the weakness in the manufacturing sector has eased. While this could provide some support to industrial commodity prices in the near term, we are sceptical that it will mark the …
Recently published figures showing a further fall in the fertility rate in Korea underline the seriousness of the demographic “time bomb” facing the country. The worsening demographic outlook is the key reason why we expect trend growth in Korea to slow …
Labour and the Conservatives have pulled their punches on housing policy. Indeed, only Labour’s pledge to boost social housing construction would materially affect the market. As a result, we expect the outcome of the election to have little impact on …
29th November 2019
We think that while yield compression across CEE markets has further to go in the next two years, property yields will rise beyond 2021 as tighter monetary policy in the region feeds through. In our recent Valuation Monitor , a fall in bond yields last …
Q3 GDP figures due next week are likely to show that Turkey’s economic recovery has continued and we think that year-on-year growth could reach as high as 5-6% in Q4 and early 2020. But policy loosening and rapid credit growth risk fuelling a fresh …
The Bank of Korea (BoK) left rates on hold today but kept the door open to further easing. With growth set to stay subdued and inflation likely to remain weak, we have pencilled in one more 25bp rate cut for early 2020. Today’s decision to leave the main …
Comments by Venezuelan President Nicolás Maduro suggest that the government considers dollarisation as an option to tackle hyperinflation. If implemented, this would probably bring inflation down sharply. But we doubt that this would be sustained so long …
28th November 2019
Following the recent correction in the nickel price, we now think there is room for it to rise next year. We expect a large loss of supply and a recovery in demand to yield a deeper market deficit, forcing drawdowns in both reported and unreported …
Our GDP Tracker suggests that Saudi Arabia’s economy contracted by around 0.5% y/y in Q3 as a greater drag from oil production cuts (as well as the temporary disruption from the attacks on oil facilities in September) more than offset stronger growth in …
27th November 2019
Since the imposition of US sanctions in May 2018, Iranian oil production has fallen by nearly 45%. For our part, we think that output would recover quickly if sanctions were lifted. Moreover, we see little risk of Iran’s oil industry suffering the same …
Revised GDP figures have, again, shown Mexico as one of the worst-performing large EMs. But a closer look at the data underlines the huge variation within the country, which includes both pockets of outperformance as well as sectors locked in structural …
In its first five months in office Greece’s new government has implemented a range of tax cuts that should support the economy and has made a start with some structural reforms. But we are sceptical that it will execute the deeper reforms needed to raise …
26th November 2019
We now expect mortgage interest rates to stay close to their current level over the next couple of years. That will give some support to housing demand but, as was the case this year, offsetting factors such as modest economic growth, tightening credit …
25th November 2019
We doubt that the global pick-up in government bond yields will resume anytime soon, so domestic monetary policy is likely to be the key driver of bonds in Switzerland and the Nordics. With that in mind, while we think that bond yields in Norway will not …
A sharp rise in the US dollar assets of Taiwanese life insurance companies poses a major threat to the health of the country’s financial sector and could also have consequences for the stability of the global financial system. A key cause of previous …
Flash PMIs for November provide further evidence of a stabilisation in the industrial sector. But with labour markets on the cusp of a marked slowdown, overall economic growth is likely to remain subdued for a while yet. Using flash PMIs for the US, …
22nd November 2019
The Labour Party’s manifesto contains several measures which, if implemented, would have a significant negative effect on UK equites. A surprise Labour win could send UK equities tumbling, despite a softer Brexit. Labour’s manifesto is one of the most …
In our view, market participants have recently become too downbeat on the prospects for lead. In fact, we think there are several reasons to expect the price of lead to rebound in the year ahead . At first glance, the near-10% fall in the price of lead …
A victory for Labour in the general election on 12 th December would probably cause the pound to slide from $1.29/£ to around $1.20/£. But the prospect of a softer Brexit, or even no Brexit at all, would limit the downside posed by some of Labour’s …
While we doubt that the growth of collateralised loan obligations has set the stage for a financial crisis in the near term, the risks of one happening further ahead have risen. Collateralised loan obligations (CLOs) are securitisation vehicles that hold …
While the manufacturing downturn has not helped the industrial sector in Germany at a national level, growing e-commerce means that prime industrial rents will still muster some growth over the next few years. Nevertheless, Germany will lag markets like …
President-elect Alberto Fernández’s plan to resolve Argentina’s debt crisis by growing the economy is not a realistic option. We think that a large debt write-down within a few years is inevitable, suggesting that there is little scope for a large or …
Following the slump in mortgage rates, the rise in the sales-to-new listing ratio suggests that house price inflation will surge. As rising houses prices will support consumption growth, the case is growing that markets, or perhaps more accurately central …
With housebuilders already close to capacity, the sector will struggle to sustain a further surge in output. As a result, if elected, we think Labour would likely to miss their manifesto commitment to build 150,000 council and social homes per year by the …
GDP growth was either flat or picked up slightly in most parts of Emerging Asia last quarter, and we think regional growth will rise gradually over the coming year helped by a slow recovery in exports and looser fiscal and monetary policy. All of the …
Calls for much looser fiscal policy in the euro-zone are falling on deaf ears. While the Netherlands and Germany have set out fiscal stimuli for 2020, each has past form for running tighter policy than planned. And any loosening in these countries is …
21st November 2019
South African policymakers left their key rate on hold at 6.50% today, and we expect that it will remain on hold going into 2020. But we do admit that the risk of a cut in the middle of next year has increased. South African policymakers’ decision to …
Bank Indonesia (BI) today left interest rates unchanged, but the cut to the reserve requirement ratio (RRR) and dovish comments from Governor Perry Warjiyo suggest that further interest rate cuts are likely. The decision by Indonesia’s central bank to …
Recent market moves, most notably in US equities, suggest to us that there may be too much bad news priced into commodity markets. Accordingly, we expect a modest rise in commodity indices in 2020, but forecast that US equities will trade in a narrow …
The price of lumber has surged in recent months. We think that prices will continue to rise in 2020 primarily on the back of ongoing strength in US housing starts and falling lumber supply from Canada . To recap, the price of US lumber has rallied by …
20th November 2019
Labour would probably borrow a lot more than the Conservatives if it won the election, but we doubt gilt yields would soar. Labour’s fiscal plans wouldn’t bring debt sustainability into question, inflation expectations are unlikely to leap and relatively …
