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 …
31st October 2019
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. …
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 …
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 …
