The falls in EM currencies today suggest that the South African rand, Turkish lira and many of those in Latin America will remain in the firing line if, as we think likely, concerns about Argentina’s debt continue to build. So far at least, there’s little …
12th August 2019
The rout in Argentine markets today will push up the public debt ratio to over 100% of GDP, and makes a sovereign default even more likely. It’s possible that the IMF requests a debt restructuring before October’s election. The collapse in markets, a …
We’ve cut our end-year rand forecast from an already below-consensus ZAR15/$ to ZAR16.5/$. While risks are growing, we’re holding to our view that the SARB will cut its policy rate by 25bp in September. While most emerging market currencies have weakened …
The planned IPO of Aramco – which reports suggest is back on – will probably make the government less inclined to impose fresh austerity measures in response to lower oil prices. The partial sale of the company itself won’t do much to improve the …
The comprehensive victory for Alberto Fernandez in Argentina’s primary election paves the way for the return to left-wing populism that many investors fear. With a renewed focus on sovereign default risks, bonds, equities and the peso will come under …
As consumer spending growth slows in Poland, we expect retail spending to slow. The effect of this on physical retail outlets will be compounded in secondary locations by a growing share of sales migrating online, as well as the full implementation of the …
Government bonds have rallied further in developed economies in recent weeks, fuelling speculation that they are in a bubble which will burst at some point. We disagree. Admittedly, we think that the rally has gone a bit too far. But we doubt that bond …
9th August 2019
Nickel prices have surged in recent weeks, owing to optimism over future demand from the electric vehicle sector and speculation that Indonesia’s ban on nickel ore exports could be brought forward from 2022. But the rally isn’t justified by current …
The statement accompanying the decision by Peru’s central bank to cut interest rates left the door open for further easing. And with the incoming growth and inflation data still weak, there is a window for further rate reductions. We’ve pencilled in 50bp …
The recent pace of Russian household lending looks frothy, but the central bank already appears to have taken some of the steam out of the credit boom. Even if household loans start turning sour further down the line, the impact on the banking sector …
8th August 2019
The risk to the euro-zone from the US-China trade war is rising. And it seems increasingly likely that the US will raise tariffs on auto imports from the EU, which could tip Germany into recession. There is also a chance that higher auto tariffs would be …
We’re comfortable with our below-consensus forecast for global growth but, for now, the increasingly gloomy view priced into bond markets seems difficult to square with the latest economic data . Regular readers will know that we’ve been among the most …
Despite the weak performance of the manufacturing sector, June activity data strengthened our view that South Africa returned to growth in Q2 after a sharp fall in Q1. Combined with recent currency weakness, a brisk recovery raises the risk that …
China’s commodity imports jumped in July, but this comes after pitifully low volumes in prior months and, in some cases, merely reflected improved availability. As such, it is unlikely to mark the start of a sustained recovery in demand . Export growth …
We probably won’t know for sure if the UK is heading for a no deal Brexit until the moment it actually happens, which would be at 11.00pm on 31 st October 2019. But there are a number of keys dates in the 84 days between now and then that could either …
Today’s 25bp cut from the central bank in the Philippines (BSP) came as no surprise, and with inflation set to fall back further and growth only likely to stage a moderate recovery over the coming months, we expect another 25bp cut before the year is …
The recent slump in dwelling starts means that housing supply will fall short of demand from next year. That suggests that house prices will continue to rise over the coming months. The number of newly-built houses has outstripped the demand from …
Headline inflation is likely to have remained below the RBI’s 4.0% target in July and will be used by the central bank as vindication of its decision to reduce interest rates for the fourth consecutive meeting yesterday. But with policy now being loosened …
The fall in Pakistan’s stock market today is the first sign that investors are starting to become concerned about the escalating crisis in Kashmir. The most likely outcome is that tensions are dialled back over the coming days, but even a period of …
7th August 2019
Iron ore prices have plunged by a sixth so far in August and we think that rebounding output and slower Chinese demand growth will mean that prices will fall by a further 20% to $80 per tonne by end-2019 . Disruptions to supply from the three largest …
The escalation of the US-China trade war suggests the Bank of Canada will once again have to mark down its forecasts for GDP growth. Given that policymakers already think it will take several years for the economy to return to its full capacity, this …
Weak growth and a strong currency were the main factors behind today’s surprise rate cut in Thailand. With the economy likely to slow further and the currency likely to continue to strengthen over the coming months, we think the central bank will cut …
Financial support from the Gulf means that Bahrain and Oman should avoid damaging devaluations and acute sovereign debt problems. Even if their governments fail to implement the fiscal tightening that the other Gulf countries demand (as seems increasingly …
The Reserve Bank delivered a (slightly) larger-than-expected rate cut today and has left the door open for further easing. If soft surveys are correct in suggesting that there is limited slack in the economy, further policy loosening could lead to higher …
While much of the market’s focus has been on China, Switzerland appears set to become the first country to meet all three of the US Treasury’s criteria of being a ‘currency manipulator’ later this year. However, if the SNB cuts interest rates, as we and …
The Reserve Bank of New Zealand cut rates dramatically to 1.0% at today’s monetary policy meeting. But given our more pessimistic forecasts of the New Zealand economy, we don’t think that the Bank is done easing and now expect it will cut rates again in …
While the recent escalation of the US-China trade war may have occurred a bit earlier than even we had anticipated, it fits with our below-consensus forecast for global growth this year and next. What’s more, it reinforces our view that the direction of …
6th August 2019
The Trump administration’s move to label China a currency manipulator may have few practical implications, but it underscores the speed at which tensions are now escalating. The key risk is that the damage from tariffs is compounded by a sustained …
The latest phase of the trade war is likely to have a relatively limited direct impact on EM exports. But with the US and Chinese policymakers upping the ante, the indirect effects via a hit to confidence, tighter financial conditions and weaker …
The Turkish lira has held up remarkably well in the face of the escalation of the US-China trade war and the recent rise in global investor risk aversion. But with the threat of US sanctions lingering, concerns about Turkey’s external vulnerabilities …
German opinion polls suggest that there is a growing chance that the next federal government, which will be formed after elections due by late 2021, will be a coalition including the Green party. However, hopes that this will prompt a much larger fiscal …
Weakness in investment activity is likely to extend into the rest of the year. Even if a Brexit deal is secured, we think that higher interest rates and stretched valuations, along with bleak rental value prospects in the retail sector, will put a …
While Japan’s government will almost certainly refrain from direct intervention on the foreign exchange markets to stem the recent appreciation of the yen, we can’t rule out that the government’s pension fund will buy more foreign assets. The key point …
The RBA adopted an easing bias when it left interest rates unchanged today. With the labour market set to loosen further, we expect the Bank to slash rates to 0.5% by early-2020. The RBA’s decision to leave interest rates unchanged at 1.0% was correctly …
The US decision to label China a currency manipulator is on shaky economic grounds since, if anything, the renminbi would be even weaker than it is now without policy support. But the move is another escalation in a deteriorating bilateral relationship …
The Fed’s Senior Loan Officer Survey suggests that the sharp fall in market interest rates over the past year is feeding through to a turnaround in loan demand. With global growth still slowing and trade tensions escalating, that won’t be enough to …
5th August 2019
The falls in EM currencies in this latest leg of the trade war have been large compared with previous episodes. If this turbulence continues, a few EM central banks (e.g. in Indonesia and Mexico) would probably postpone interest rate cuts and one or two …
Currencies from the rest of Asia have fallen back sharply following today’s drop in the renminbi to below 7.0 against the US dollar, and are likely to weaken further over the coming months. While weaker currencies are unlikely to stop central banks from …
The profits of Corporate America have shrunk during the past four years according to revised estimates recently published by the US Bureau of Economic Analysis (BEA). By contrast, S&P 500 operating earnings per share (EPS) have grown by nearly 50%. …
The latest data for German offices suggest a better-than-expected start to 2019, as a result of solid employment growth and tightening supply. This has led us to revisit our office forecasts for the top cities, though we still expect a slowdown of …
Investment growth collapsed to a near four-year low in Q1. While a spectacular rebound will remain elusive, investment should recover gradually over the coming quarters as election-related uncertainty clears and funding costs drop following the RBI’s cuts …
The PBOC has allowed the renminbi to fall to its weakest level in a decade in response to trade tensions. It appears to have decided that, given the increasingly dim prospects of a trade deal with the US, the boost to China’s export sector from currency …
The number of mortgage applications for home purchase jumped earlier this year, but those buyers came up against the tightest market conditions for 40-years. Increased competition for homes crowded out cash buyers, which helps to explain the growing gap …
2nd August 2019
The trade war between the US and China has made barely any difference to the scale of their bilateral trade imbalance, which was President Trump’s original concern. But China is reaching the limits of its ability and willingness to restrict imports from …
Commodity prices plummeted yesterday in a knee-jerk reaction to the news of more US tariffs on Chinese goods. We have argued for some time that the US-China trade war was likely to escalate, and it has been a reason why we have been particularly bearish …
Japan’s decision to remove Korea from its list of trusted trading partners looks set to cause significant short-term disruption to Korea’s economy, and is likely to prompt the Bank of Korea (BoK) to cut interest rates sooner than we had previously …
The announcement by President Donald Trump of further tariffs on Chinese imports has rattled the markets, but we have long suspected that it was only a matter of time before the trade dispute escalated further. With those tariffs likely to have a more …
The further fall in Markit’s global manufacturing PMI in July adds to the evidence that industry remained in the doldrums at the start of the third quarter, with forward-looking components suggesting that a recovery is unlikely anytime soon . The global …
1st August 2019
Gold demand to plateau over the rest of 2019 Central bank buying and ETF inflows underpinned robust demand for gold in the first half of 2019. While we think that strong official sector buying will continue, ETFs may start to see outflows as investors …
The manufacturing sector drove half of May’s rise in GDP, but the latest business surveys suggest that this strength will not be sustained. May’s 1.2% m/m rise in manufacturing GDP explained half of the 0.2% rise in overall GDP. A bit more than half of …
