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 …
The minutes of the Reserve Bank’s August policy meeting suggest that the MPC’s larger-than-expected rate cut was intended in part to send a dovish signal rather than simply being a case of “front-loading” loosening. This supports our view that further …
Loan losses have remained low throughout the housing downturn but we suspect that they will pick up soon, driven by higher write-offs on corporate loans. However, loan losses tend to lag changes in lending standards. With the Royal Commission now behind …
While the Swedish krona and the Norwegian krone are now near the record lows they reached against the euro in 2008-09, we think that monetary policy and rising risk aversion will push them down further. The Swedish and Norwegian currencies have …
21st August 2019
The recent political turmoil in Peru has stoked fears about governability issues, and congressional gridlock is likely to continue in the near term. But in contrast to many other analysts, we doubt that this will prevent GDP growth from accelerating in …
The current global economic slowdown may descend into something more serious if manufacturing drags services down with it. Fortunately, there are reasons to think that the spillovers from the industrial slump will continue to be limited, at least during …
The weakness in the retail surveys has led some to question whether the consumer sector will succumb to the malaise that has taken hold in the manufacturing sector. But we are sceptical the consumer sector will falter. In all our Brexit scenarios, we …
The recovery in Hungarian private sector credit has been an important driver of GDP growth in recent years, but we think that the credit boom doesn’t have much further to run . One of the most impressive aspects of Hungary’s recent expansion – GDP grew by …
After almost a decade of ultra-low interest rates and rising real estate valuations, concerns have been voiced about the outlook for property. In our view, these worries are not completely unfounded and returns are likely to moderate, but crash fears are, …
For all the bad news on the global economy recently, it looks as if GDP growth across Emerging Asia held broadly stable last quarter. Although growth is likely to remain fairly weak over the coming year, with fiscal and monetary policy being loosened, we …
After a relatively calm first half of 2019, EM capital outflows probably picked up significantly in August as US-China trade tensions escalated. And outflows are likely to remain larger over the second half of the year, putting EM currencies under …
The dramatic narrowing of the spread between the prices of Brent and WTI oil in the last month, reflects a structural change in the market as logistical bottlenecks in the US are being resolved. As such, we expect the Brent-WTI spread to trade in a much …
20th August 2019
Hopes that Italy’s political crisis will pave the way for a more market-friendly government are likely to be disappointed. The most plausible outcome is a new general election, either later this year or in early 2020, which will usher in a …
The fall in oil prices this month will create both winners and losers in Africa. But the winners’ gains will be small and spread across dozens of countries, whereas pain will be concentrated in a few economies. Lower energy prices will depress inflation, …
In coming years, we think that increases in retail yields will cause all-property yields to rise, irrespective of our expectations for interest rates and the economy. However, further out, if all-property yields continue to be less responsive to changes …
The sharp rise in Egyptian external debt in the last few years has triggered alarm in some quarters. But it has been accompanied by a large increase in FX reserves, suggesting that risks are currently manageable. Egypt’s external debt has increased …
Quasi-rate cut still leaves the PBOC with work to do The newly revamped Loan Prime Rate (LPR), intended to replace the traditional benchmark lending rate as the reference point against which banks price loans, was launched today. The one-year LPR was set …
With mortgage rates set to drop to 3.8% over the next couple of weeks, and inventory tight, we have edged up our house price forecast and now expect a rise of 3% this year. But a slowing economy and tighter mortgage lending standards argue against a …
19th August 2019
We forecast that a weaker South African rand coupled with the high prices of by-products at platinum mines will mean that the price of platinum stays firmly in the doldrums over the next couple of years . After years of a falling or lacklustre platinum …
While much of the sharp contraction in manufacturing in the second quarter can be put down to Brexit distortions, a meaningful recovery is unlikely given the ongoing struggles of global manufacturing. But the resilience of the services sector suggests …
A long-awaited shake-up of how China’s banks price loans should in time give policymakers much finer control of bank lending rates and could open the door to a quasi-rate cut as soon as tomorrow. But it won’t immediately clear the roadblocks that have …
The era of sustained, rapid house price growth appears to be over. But even so, the cost of owning a home is still favourable compared to renting and is likely to stay that way. That suggests that households’ strong preference for owner occupation will be …
While the imminent change in leadership at the Central Bank of Iceland (CBI) is unlikely to affect its current easing bias, the new Governor will have a bigger role in shaping policy than his predecessors. Having been named as the new Governor of the …
The Japanese yen has continued to appreciate and is now close to our year-end forecast of ¥105/$. Though the drivers behind its strength may shift, we expect upward pressure on the yen to persist. Since President Trump’s latest escalation of the …
16th August 2019
Copper prices are hovering near two-year lows, reflecting investor concerns about the outlook for global growth. While dwindling mine supply should put a floor under prices, deteriorating investor sentiment will probably prevent any meaningful rebound …
We think that emerging market (EM) currencies will continue to struggle over the rest of 2019 as the global economy remains weak for longer than investors anticipate, the trade war escalates further and political risks, notably in Argentina, remain high. …
15th August 2019
Despite the recent pick-up in wage growth, we continue to think that core inflation will decline over the next 12 months. Hourly wage growth rose to 4.5% in July, according to the Labour Force Survey, and 3.7% in May according to the Survey of Payrolls, …
Inverted yield curves in the US and elsewhere tell us very little about the timing of future downturns and, for now at least, the economic data are more consistent with a slowdown than a downturn in the world economy. That said, there are clear risks to …
The inversion of the yield curve has stoked concerns about the possibility of an imminent recession, if the UK is not already in one. However, even though the downside risks to the economy have increased recently, unless there is a no deal Brexit we still …
The rout in Argentine markets is likely to push the economy back into recession. We now expect GDP to contract by 3% over this year as a whole (our previous forecast was -2.0%) and inflation to breach 60% y/y (from 55% y/y now). We also anticipate a …
