The recent sharp rise in Saudi banks’ wholesale borrowing isn’t yet a major cause for concern, but it does mean that credit growth is more vulnerable to a shock that causes external financing conditions to tighten. Saudi bank’s foreign liabilities have …
3rd September 2019
South Africa’s economy made a surprisingly strong recovery in Q2, growing by 3.1% q/q saar, but growth remained weak at a year-on-year rate. Given soft demand and low petrol prices, we expect that inflation will remain subdued, opening a brief window for …
Indonesia’s announcement of an imminent ban on exports of nickel ore has sent nickel prices to a five-year high. While trending higher initially, we expect prices to slump next year as supply is incentivised . Last Friday, Indonesia - the world’s largest …
Disappointing Q2 GDP figures out today underlined the weakness of Nigeria’s economy. This supported our below-consensus view that growth will remain trapped at around 2% in 2019 and 2020. Figures released this morning showed that economic growth in …
There is a wide range of plausible outcomes for the economy if the Labour Party were to win a general election. But our inkling is that the most likely result would be a moderately weaker economy than otherwise, modestly higher interest rates and bond …
The RBA sounded a little more optimistic when it left interest rates unchanged at today’s meeting. But with external headwinds intensifying and the labour market set to weaken further, we still expect the Bank to cut interest rates to 0.5% over the coming …
The events in Parliament over the next week and a half will be crucial in determining whether Brexit will be delayed beyond 31 st October, whether there’s an election or whether there is a big step up in the chances of a no deal that could hit the …
2nd September 2019
Labour’s proposed Right to Buy scheme for private tenants could have severe unintended consequences. The supply of property available to rent would fall, pushing up rents across the board. Moreover, if rented homes could be bought for a discount, the …
The capital controls introduced by Argentine President Mauricio Macri over the weekend may, in the short term, help to stem capital flight and slow the pace of FX reserve depletion. But their imposition might make it easier for a future left-wing …
China’s official and unofficial PMIs diverged in August. But both remain consistent with slower year-on-year growth in the remainder of 2019, which does not bode well for energy and industrial metals prices . China’s Caixin manufacturing PMI jumped to …
The government’s plan to merge several state-run banks is another step in the right direction towards fixing the beleaguered system. It follows a recent increase in the size of the recapitalisation package and strengthening of the bankruptcy code. But …
The Bank of Korea sounded more bearish on the outlook for the economy even as it left rates on hold today. As such, we continue to expect more easing this year, with another 25bps cut in October. Today’s decision followed the first rate cut in three years …
30th August 2019
Concerns around the economic outlook have encouraged banks to tighten mortgage lending standards, offsetting some of the impact of lower interest rates on home sales. Surveys suggest that tightening will continue. Alongside low inventory, that will act as …
29th August 2019
Measures of covenant strength suggest that retail sector and West End office tenants are most at risk of default. With only a small share of these properties under-rented, this is consistent with our expectation that yields will increase the most for …
The surge and contraction in GDP over the first half of the year can be blamed on the original 29 th March Brexit deadline. While we expect a similar pattern in Q3/Q4 due to the current 31 st October deadline if there isn’t a no deal, we doubt it will be …
The Argentine finance ministry’s decision to extend the maturities of some of its short-term local-law debt, and enter talks with external bondholders, is tantamount to default. The government and bondholders stand a good chance of agreeing to some …
The policies of the next European Commission are likely to speed up the EU’s ongoing transition towards a greener energy future. However, its impact will probably not live up to expectations . President-elect of the European Commission, Ursula von der …
We doubt that stocks that reliably pay high dividends will fare better than their peers during the rest of this year, as we think that bond yields are unlikely to fall much further and might even bounce back a bit. Dividend aristocrats are companies that …
The unexpected release of economic reform proposals by South Africa’s treasury is probably an attempt to push the president to announce a more ambitious plan at October’s budget speech. The plan contains numerous suggestions that would boost growth in the …
Measures announced by the government yesterday to loosen restrictions on FDI are a welcome step and we think that further reforms aimed at attracting foreign investment are likely over the coming months. That bodes well for India’s external position and …
China’s share of global exports has increased over the past year, despite US tariffs. Renminbi depreciation and the transhipments of goods to the US via neighbouring countries can take much of the credit. China’s economy has held up well despite the …
Germany could have taken the UK’s departure from the EU in its stride a couple of years ago but it will be hit quite badly if a no-deal Brexit occurs in two months’ time. There is still enormous uncertainty about how and whether the UK will leave the EU, …
28th August 2019
The Prime Minister’s decision to suspend Parliament from sometime in the second week of September until 14 th October increases the downside risks to the British economy and the pound by decreasing the chances of a further delay to Brexit and increasing …
Plummeting bond yields in 2019 have dramatically improved property valuations, supporting the outlook for property prices. Indeed, we now think that euro-zone prime office yields can extend their falls over the next few years, taking the total shift in …
The Argentine central bank’s large intervention in the FX market in recent days hasn’t been enough to stop the peso from weakening further against the dollar, and we think that the gross FX reserve figure overstates the BCRA’s ability to prop up the peso. …
Gold imports set to remain in the doldrums Gold’s price rally saw Indian and Chinese imports continue to tumble in July. And, given that prices have risen further in August, gold imports could record multi-year lows in the second half of 2019 . Data …
As the global economy slows, we think that expectations for bank earnings will prove too optimistic and that relatively high bank equity valuations in the US, Canada, Australia, and the Nordics are likely to fall. Bank equities have struggled more than …
The Prime Minister’s decision to suspend Parliament from sometime in the second week of September until 14 th October increases the downside risks to the economy and the pound by decreasing the chances of a further delay to Brexit and increasing the …
Given the deep downturn in the tourism sector, this morning’s decision by the Central Bank of Iceland (CBI) to cut interest rates by a further 25bps came as no surprise to us. We think that policymakers will continue the easing cycle at the next meeting, …
Kenya’s drought will probably push inflation above the CBK’s target range in Q4. But bank will likely look through this spike, as it did in 2017. We think the next rate move will be a 50bp cut in Q4 2020. Inflation picked up again in July, rising from …
While the US-China trade war has escalated, we had already expected the two countries’ dispute to deepen. Meanwhile, although a thawing of US-Iran relations could mean a return to the market of Iranian exports, this seems a long way off. As such, we see …
27th August 2019
Our GDP Tracker suggests that Saudi Arabia’s economy slowed further in Q2, to just 1.0% y/y, as the drag from the oil sector intensified. We think that GDP growth will be even softer in the coming months and we’re comfortable with our below-consensus …
The trade deal that the US and Japan have negotiated won’t provide major benefits for Japan’s economy. And while it seems to have reduced the risk that the US imposes any tariffs on Japanese car imports, the deal faces an uncertain future in the US …
With President Trump adding yet more US tariffs to the pipeline, the impact on China’s economy is starting to add up. With the drag on GDP growth set to rise to nearly one percentage point before long, it is significant enough to warrant looser monetary …
26th August 2019
Growth in the money supply has picked-up in Australia but we don’t think the money supply has much of a relationship with economic activity. Even so, banks have started to ease lending standards which should support credit growth and support economic …
The tariffs announced today by China’s government are a departure from previous rounds of retaliation: they focus almost entirely on further raising tariffs on products that have already been targeted. That most likely reflects concern that applying …
23rd August 2019
We think that a recovery in refined lead production, ailing demand, and elevated trade tensions should cause the price of lead to drop by almost 15% by end-2019 . To recap, LME lead prices have risen robustly this summer, despite a broad-based decline in …
Investors appear to be coming round to our view that an Argentine sovereign debt default is now more likely than not. This Update provides clients with a primer on the composition of federal government debt, and explains what this might mean for any debt …
So far, the current global economic downturn has been driven by a marked decline in manufacturing activity, with obvious negative implications for commodities demand and prices. Less intuitively, we think that if the malaise spreads to the services …
Yield curves have inverted in most advanced economies over the past couple of weeks, including in the US, Germany and the UK, sparking fears of an imminent global recession. While most advanced economies will just avoid falling in a recession in our view, …
A no deal Brexit later this year could mean that the UK government decides to substantially reduce its strategic reserves of petroleum products. But even after a reduction, the UK’s reserves should remain ample. What’s more, any sell-off in product stocks …
The Egyptian central bank cut its overnight deposit rate by a larger-than-expected 150bp last night (to 14.25%) and with inflation likely to fall further in the coming months, much more easing lies in store. We have revised down our year-end forecast to …
The Central Bank of Sri Lanka (CBSL) cut rates today, but given our view that the rupee will come under pressure again this year, we think this will probably mark the last cut in 2019. Today’s decision by the CBSL to cut both its deposit and lending rate …
PMI surveys for August imply that growth in advanced economies has slowed further in the third quarter. But one crumb of comfort is that the weakness in manufacturing has not yet weighed much on services. Markit’s flash composite PMIs, published today, …
22nd August 2019
Rental growth typically falls back during economic slowdowns, but we think rents will hold up relatively well over the next couple of years. With the rental vacancy rate close to record lows the market is starting from a position of a strength, and a lack …
Despite President Donald Trump’s complaints that the strong dollar is holding back the economy, the dollar’s rate of appreciation matters more than its level and it has risen by only 3% in trade-weighted terms over the past year. Even the further modest …
If manufacturers and wholesalers draw down their inventories to more normal levels over the next 18 months, it will knock over 1.0%-point from annual GDP growth by the early stages of 2020. While manufacturing sales volumes fell by just 0.2% m/m in June, …
The account of the Governing Council’s July meeting shows that there was broad support for further policy easing in September and perhaps for a change to the inflation target fairly soon. It leaves us comfortable with our forecast for a 10bp deposit rate …
Despite the recent weakness of the rupiah, Bank Indonesia (BI) today cut its benchmark interest rate for the second consecutive month to 5.50% and hinted that further easing is on the horizon. But the uncertain outlook for the currency means any further …
Accelerating wage growth has lowered the house price to earnings ratio, even as house prices themselves have continued to climb. Indeed, London has already seen an 11% drop in earnings-adjusted prices. Looking ahead, we expect wage growth to drive a …
