Even though we expect the S&P 500 to end 2024 at a much higher level than it is now, we doubt it will build on its recent gains over the coming months given the outlook for the economy. The story for much of this year has been the surprising resilience of …
10th November 2023
High carry EM currencies have rallied as US bond yields have fallen back and risk sentiment has improved, but we still expect most of these currencies to come under renewed pressure in the coming months. Since the peak in 2-year Treasury yields on 18th …
9th November 2023
Governments across Central and Eastern Europe (CEE) need to deliver significant fiscal tightening over the coming years to prevent public debt ratios from grinding higher. The risk of an imminent fiscal crisis across the region looks low relative to many …
The bankruptcy of WeWork in the US was a predictable end to a long-running saga. Its effects on office markets will not be systemic, but they will reinforce existing weaknesses and pile more bad news on the sector just at the wrong time. The announcement …
The US dollar’s struggles over the past month or so are reminiscent of the lead up to its sharp fall in Q4 of last year, but a similar slide over the coming months looks unlikely. Instead, we continue to think that the greenback will muddle through, …
Persistent balance of payments strains brought pressure on some of the region’s non-oil producing countries who employ fixed exchange rate regimes. FX reserves have been depleted to support currencies and, in some cases, these are insufficient to cover …
Protests against a large copper mine have raged in Panama over the past few weeks. If mine production ceased, there would be noticeable impact on global supply but the risk of this happening is small. The mine is a key part of Panama’s economy and is only …
Bank lending data from the major advanced economies confirmed that lending was very subdued in September and the latest bank lending surveys show that banks have since tightened their lending criteria further. With demand for loans also falling, the drag …
We have raised our gold price forecast to reflect the current heightened geopolitical risk. We think the price will rise further next year as the limited fallout from the conflict won’t prevent the US Fed from starting to cut interest rates in 2024. Our …
An opposition win in Taiwan ’ s upcoming presidential election could lead to a complete or partial reversal of the economic sanctions that China has imposed on Taiwan ’ s economy during Tsai Ing-wen ’ s presidency. The restrictions on tourism are the …
A tentative improvement The past prices balance remained deeply negative in October contradicting the 1% m/m increases in house prices recorded by both Halifax and Nationwide. But a recovery in buyer enquiries suggests the decline in mortgage rates since …
Business investment had so far been resilient to higher interest rates, but growth stalled in the third quarter and there are three reasons why we think that’s a sign of things to come. First, the boost from surging manufacturing structures investment has …
8th November 2023
The Vaca Muerta shale formation will alleviate some of the pressure on Argentina’s fragile balance of payments position by substantially reducing the country’s gas import bill and raising oil export revenues. While this is good news for the crisis-ridden …
Despite the steepest crash in commercial property values on record, the credit risk and asset quality of European banks’ commercial real estate (CRE) lending is holding up well. Further declines in values mean there could be a further deterioration, but …
One factor that may have contributed to higher Treasury term premia, as posited recently by the Treasury Borrowing Advisory Committee in connection with the Quarterly Refunding, is a shift in the correlation between US government bonds and equities. We …
7th November 2023
Activity in the euro-zone’s construction sector is declining and the outlook is poor. The latest surveys suggest that construction output will decline by up to 2% q/q in Q4. Given the tightening of financial conditions over the past few years, the …
Italian households have been the main net purchasers of Italian government bonds recently and we suspect that they will buy a lot more in the coming months. However, the sustainability of Italy’s debt will ultimately depend not on the behaviour of any one …
Growth in Costa Rica is likely to slow by more in 2024 than officials currently expect amid weaker growth in the US, high commodity prices and tight fiscal policy. Further ahead, though, a burgeoning medical goods sector, robust FDI inflows and the …
The rise in house prices in October was a challenge to our long-held view that high borrowing costs will cause them to drop further. The resilience of prices in part reflects longer mortgage terms, which are reducing mortgage payments. And a tight labour …
The recent stickiness of the Fed’s preferred measure of ‘supercore’ inflation mainly reflects temporary factors rather than ongoing tightness in the labour market. The upshot is that we still expect a decline in inflation for PCE core services ex-housing …
China’s import data for October indicated that its demand for commodities remains robust but we think that further growth in the next couple of months is likely to be modest. China’s preliminary trade data for October, released today , showed a …
Higher profitability has helped to boost EM banks’ financial positions over the past year and reduced the tail of weak banks that might struggle to cope with rising loan losses on their balance sheets. The overall EM picture looks strong, but pockets of …
As had been widely expected, the RBA handed down a 25bp rate hike at its meeting today. With the cash rate now at 4.35%, we believe the Bank’s tightening cycle is over. If we’re right that the Australian economy will soon take a turn for the worse, rate …
The Fed’s latest Senior Loan Officer Opinion Survey suggests that, while they remain tight, credit conditions have eased a little since the run of regional bank failures earlier this year prompted the Fed to boost its liquidity provisions to the sector. …
6th November 2023
We held a Drop-In last week to explain our thoughts on the latest policy communications from the Fed, ECB, and Bank of England following their decisions to leave rates on hold. (See the recording here .) This Update answers several of the questions that …
With the unemployment rate rising, the Sahm rule will probably be triggered soon. That will prompt claims a recession has started but, since that rise is due to increased labour supply as much as it is weaker demand, we would caution against relying on …
Italy stands out in the euro-zone for its particularly worrying public debt dynamics. The governments of most euro-zone countries could stabilise their debt ratios while running primary budget deficits. But due to Italy’s poor growth prospects and higher …
There are increasing signs that the most leveraged borrowers are struggling to refinance their mortgages with traditional lenders. The small but meaningful number of insured mortgage holders who took out a two-year fix when house prices peaked in early …
Wage growth looks to finally be slowing in the euro-zone amid weaker economic growth and falling inflation, but it remains too high for comfort. As a result, we think the ECB will wait until a more marked slowdown becomes evident to begin cutting interest …
3rd November 2023
This week we held a drop-in on the prospects for commercial property investment in the UK and Europe, which can be found here . This Update provides answers to the most interesting questions that emerged from the discussion. Will prime offices outperform? …
We expect Japan’s stock market to underperform that of the US in both local- and common-currency terms over the next couple of years. The effective abandonment of Yield Curve Control by the Bank of Japan has helped yields there continue to climb over this …
October’s manufacturing PMIs suggest that global industrial activity continued to contract at the beginning of Q4 and forward-looking indicators point to further weakness ahead. The output component of the global manufacturing PMI fell from 49.7 in …
2nd November 2023
The SNB has been uncharacteristically active this week, making a string of announcements about monetary policy, its balance sheet, minimum reserve requirement and lessons from the Credit Suisse debacle. None of these change the big picture, but they do …
The rise in the US homeownership rate has stalled, driven by a drop in the proportion of under-35s that own their home. That’s down to higher mortgage rates reducing the number of first-time buyers (FTBs) that can afford to buy. Our forecast is for …
Most EM manufacturing PMIs for October were weaker than expected, largely driven by sluggish domestic and external demand. This weakness has, at least, resulted in input and output price components dropping back, which supports our view that the EM easing …
We think the Bank of Japan’s continued steps towards policy normalisation are consistent with somewhat higher JGB yields and a significant rebound in the yen over the coming quarters. To recap, the BoJ made another tweak to its Yield Curve Control (YCC) …
The underperformance of wind and solar equities since early 2021 has largely been driven by higher interest rates, which disproportionately affect the cost of renewables projects. But while the days of ultra-low financing costs are behind us, our …
This publication has been updated with additional analysis from the post-meeting press statement and press conference. CNB in ‘wait and see’ mode The Czech National Bank’s (CNB’s) decision to leave interest rates on hold again today, at 7.00%, was …
We’ll be discussing the latest Fed, ECB and Bank of England policy decisions in a 20-minute Drop-In webinar at 3pm GMT today. (Register here .) The Bank’s decision to leave interest rates at 5.25% for the second time in a row and to double down on the …
Although consumer spending has remained remarkably resilient in the US so far this year, it has weakened in other advanced economies. And as the lagged effects of high interest rates filter through to households in an environment of low consumer …
Brazil’s central bank (BCB) cut the Selic rate by 50bp, to 12.25%, at yesterday’s Copom meeting and signalled again that further similar reductions lie in store over the next few meetings. Even so, with strong wage growth set to keep inflation above …
We expect industrial rents in Belgium to outperform the rest of the euro-zone on the back of a brighter economic outlook, very tight supply and a larger rise in e-commerce. We forecast annual average rental growth to reach 3.5% p.a. for the period …
We think that the decision today by Norges Bank to leave its policy rate on hold at 4.25% signals the end of its tightening cycle. Contrary to the Bank’s communication, we do not expect a hike in December given that inflationary pressures should continue …
The government today confirmed that it intends to welcome an increasing number of permanent residents in the next couple of years. Even if the number of permanent residents continues to rise, however, the record number of temporary residents currently in …
1st November 2023
By leaving rates unchanged while continuing to flag the possibility of further tightening to come, the Fed indicated today that it remains in ‘wait and see’ mode. But Chair Jerome Powell appeared to strike a more dovish tone in his press conference and we …
The September JOLTS data suggest that the labour market is loosening at a slightly slower pace, but still point to a sharper fall in wage growth ahead. There is little support for the idea that resilient activity growth in the third quarter will lead to a …
The PMI surveys released so far for China weakened in October with the manufacturing PMIs falling back into contractionary territory. We think China’s demand for commodities will be supported by further fiscal stimulus over the next few months, but a …
One question we have received frequently from clients is what lessons Israel’s previous wars offer when thinking about the effects on its economy from the conflict today. While no two events are the same, one lesson is that the near-term hit to economic …
South Africa’s finance minister reaffirmed his commitment to fiscal consolidation in today’s Medium Term Budget Policy Statement (MTBPS) but, even so, debt is now projected to peak at a much higher level than previously envisaged. A potential new fiscal …
