Having mirrored the ECB’s 10bp interest rate cut this afternoon, we now expect the Danish Nationalbank to reduce its Certificates of Deposit rate again by the end of the year. Meanwhile, although the SNB is likely to stick with FX interventions for a …
12th September 2019
The continued strength of housing starts in August could be a sign that we are overestimating the size of the decline to come. This is unlikely to prevent a broader slowdown in GDP growth, however. Housing starts only edged up in August to 226,000 …
With today’s policy decision, Mario Draghi appears to have locked the ECB into QE for several years beyond his time in office. While the move was initially welcomed by financial markets, we doubt that it will be enough to re-invigorate the euro-zone …
Capital controls can be an effective tool if policymakers are able to plug loopholes and address the underlying economic vulnerabilities that initially resulted in pressures on the financial account. But this looks unlikely in EMs such as Argentina and …
The Turkish central bank delivered another larger-than-expected interest rate cut today and we now expect the one-week repo rate to reach a trough at 12.50% (previously 16.00%). But if we’re right in expecting inflation to start rising again and the lira …
Despite the slight improvement in the manufacturing sector, the batch of activity figures for July suggests that South Africa’s economic recovery in Q2 faded at the start of Q3. This adds to reasons to think that the Reserve Bank will cut its key policy …
Surging Chinese smelter output and faltering demand mean we think that zinc prices are set to drop by more than 15% by the end of this year and are unlikely to start recovering until the second half of 2020 . Our long-held bearishness on zinc prices has …
The dovish statement which accompanied today’s decision by Bank Negara Malaysia (BNM) to leave its policy rate on hold at 3.00% suggests that the central bank is leaving the door open to further easing. We are sticking with our forecast that the Bank will …
Intervention by China’s government to halt the spread of African Swine Fever (ASF) and mitigate its impact on pork prices is proving ineffective. Inflation will next year rise above the government’s target for the first time in nearly a decade as a …
President Donald Trump’s call for the Fed to slash interest rates to zero or “less”, so that the Treasury can lock-in low borrowing costs for the very long term, sounds appealing in a sustained low inflation environment. But the evidence from other …
11th September 2019
The more dovish-than-expected press conference following today’s MPC meeting confirmed that the Polish central bank is placing more weight on concerns about the weak external environment than domestic inflationary pressures. While we think that inflation …
Uganda’s balance of payments position is looking increasingly unsustainable. The currency is likely to weaken and domestic demand is set to slow. We think that GDP growth will be a lot weaker than most currently expect over the coming years. Uganda’s …
Latin American currencies are likely to weaken further in the coming months alongside most EM currencies. But while we expect the Chilean peso and Peruvian sol to end next year stronger than their current level, the Brazilian real and Colombian peso will …
While we are revising up our once-bullish end-2019 forecasts for the prices of gold and silver, we think that the price rally this year has now run its course. Next year, we expect a recovery in bond yields and a rise in investor risk appetite to push …
Italian assets have rallied since a new ruling coalition between the Five Star Movement (M5S) and the Democratic Party (PD) was formed. While we have revised our forecasts to reflect the reduced political risk associated with the new government, we still …
The slowdown in Qatar’s economy over the past decade should come to an end in the coming quarters as the start of production at the Barzan gas project boosts growth in the hydrocarbon sector. But tight fiscal policy and a slowdown in credit growth are …
With job creation driven in part by self-employed workers, the recent resilience of the labour market appears to be less positive for occupier demand. What’s more, the weakness in economic activity and falling job vacancies suggest that office-based …
The impact of the trade war between the US and China on the UK economy has been small, even allowing for the indirect effects on investment and the financial markets. Admittedly, trade tensions will probably intensify further from here. Even so, the …
The trade war has probably lowered Chinese demand for Australian exports by curbing investment in factories and warehouses. But the trade tensions have contributed to the weakening of the Australian dollar, which is boosting net trade. While a further …
The latest NFIB and JOLT surveys point to a drop in business equipment investment over the rest of the year and provide more evidence that labour market conditions are no longer tightening. The small fall in the NFIB index in August suggests that, in …
10th September 2019
When the Brexit process comes to a head in October the economy could shift onto a new trajectory. This Update sets out the key events that could affect which of our forecasts the economy follows. The first thing to point out is that there won’t be an …
Early-warning indicators suggest that Hong Kong’s banking system is primed for a crisis. And banks face multiple shocks from an economic recession, a housing market correction and capital outflows. But conservative lending standards and strong capital …
The usual seasonal uplift in demand should support the price of Pacific coal until end-2019. However, we expect average prices to fall in the years ahead owing in large part to weaker demand prospects . The price of Pacific coal has tumbled over the past …
We doubt that Central and Eastern European (CEE) currencies will be able to regain any of the ground they have lost against the euro over the next year or so. The Hungarian forint is likely to be the worst performing currency in the region, while the …
9th September 2019
The sharp fall in market interest rates over the past 12 months is starting to support the economy, with activity growth in rate-sensitive sectors like durables consumption and housing rebounding in recent months. With income growth slowing and the …
The 2020 budget presented by Mexico’s finance ministry at the weekend suggests that there will be a tilt towards providing modest stimulus to the struggling economy. But the big picture is that the government is continuing to pursue fiscal discipline, …
The change at the helm of the Saudi energy ministry raises the chances that the current OPEC+ output deal is extended beyond its current expiry date of March next year, which would probably require the Kingdom to keep its oil output below its quota. The …
China’s commodity imports ticked up in August, in part due to strong infrastructure spending. But we expect them to weaken in the months ahead as temporary factors fade and construction activity tails off . China’s export growth turned negative in August, …
The recent strong pace of house price gains is unlikely to last as income growth is set to remain subdued. We expect house prices to rise by around 5% next year and in 2021. A rebound in house prices is good news for vehicle and furniture sales, but …
Russian central bank governor, Elvira Nabiullina, used the post-meeting press conference to hint at a possible further rate cut by year-end, supporting our view that the easing cycle has further to run. For our part, we think slow growth and weak …
6th September 2019
The PBOC will release a portion of the reserves commercial banks’ hold at the central bank. While this will pull down interbank rates in the short run, the PBOC will need to cut its policy rate to make the lower interbank rates stick. But even if policy …
After spending much of the last year as an outlier, IHS Markit has fixed the Halifax index. In line with the other main measures, the index is now recording sluggish house price growth. And with the usual month-on-month volatility now greatly reduced, the …
Although we are revising down our once-bullish forecast for the 10-year US Treasury yield, we think that it has fallen too far and will rebound to 1.75% by the end of 2019 and rise significantly next year. Since early October 2018, the yield has fallen …
Headline consumer price inflation is likely to have risen in August, due in large part to a renewed pick up in food inflation. But it will remain comfortably below the RBI’s 4.0% target. And given the weakness of GDP growth in Q2, further rate cuts are …
We expect EM currencies to come under further pressure over the coming quarters, but the falls are unlikely to be on the same scale as the ones which ended previous easing cycles. As a result, most EM central banks are likely to cut interest rates further …
5th September 2019
We continue to expect a modest rebound in coffee prices by end-2019 as currently low prices force many high-cost producers to exit the market altogether . Coffee prices have plunged since July, owing largely to a sharp depreciation of the Brazilian real. …
Yesterday’s announcement by Hong Kong Chief Executive Carrie Lam that the government will withdraw the controversial extradition bill that sparked the current political crisis has raised hopes that tensions in the territory will start to subside. But …
The decision by the Riksbank to leave its repo rate on hold at 0.25% this morning was never really in doubt. However, its hawkish tone and cautious approach to cutting its forecasts for the repo rate poses serious risks to its credibility. Given that all …
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament late on Wednesday 4 th September on the Prime Minister’s call for a general election on 15 th October. Tonight was a good night in Parliament for the …
4th September 2019
The Bank of Canada has become more concerned about deteriorating global conditions and, given our view that global growth will slow further, we continue to expect the Bank to cut interest rates in October. Alongside its decision to keep the policy rate …
The fact that investors are now pricing in looser monetary policy in Sweden highlights the extent to which the Riksbank has fallen behind the curve. Anything less than a substantial dovish shift in the Bank’s tone and forecasts tomorrow would be a big …
The formation of a coalition between the Five Star Movement and the Democratic Party reduces the risk of a renewed clash with the EU over fiscal policy, but it does not dramatically alter the economic outlook. We think that the economy will continue to …
While the bulk of the extra spending unveiled today in the 2019 Spending Round had already been announced, its overall stance was a bit looser than had been anticipated. This could raise GDP growth by about 0.2ppts in 2020 and by 0.1ppt in 2021, …
Under any plausible growth scenario Greece’s credit rating is likely to remain well below investment grade over the coming years. Among other things, this means that Greek bonds will not be included in any fresh round of ECB QE, even if, as we suspect, it …
Yesterday’s MPC statement suggested that Chilean policymakers will follow yesterday’s 50bp cut with more easing. The latest growth and inflation data have been weak, and there is a window for further rate reductions. We have now pencilled in an additional …
Following the vote in Parliament to push on with legislation to rule out a no deal Brexit, a general election is on the cards either before or after a delay to Brexit. With the Conservatives ahead in the polls, a no deal Brexit may will remain a strong …
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament late on Tuesday 3 rd September on the first step of plans to delay Brexit from 31 st October to 31 st January 2020. Tonight’s decision by Parliament to …
3rd September 2019
The rise in the EM manufacturing PMI for August is further evidence that the slowdown in EM GDP growth has bottomed out. But the surveys remain consistent with sluggish growth, and we continue to expect most EM central banks to loosen policy over the …
The small uptick in the global manufacturing PMI in August offers little comfort about the state of the world economy. The index still points to very weak global production growth, the downturn in the US is deepening and the future output indices have …
We think that low oil prices and a continued slump in the property sector will cause investment growth in Colombia to slow in the coming quarters. This is one reason why our growth forecasts sit at the bottom of the consensus range for this year and next …
