More than €1trn of TLTROs will be redeemed over the next eighteen months, significantly reducing euro-zone banks’ liquidity and pushing up their funding costs as they adjust their balance sheets. Banks may also increase their holdings of government bonds …
7th June 2023
Growth in China’s commodity imports generally was strong in May, with a notable rise in crude oil imports. While the data are consistent with our above-consensus outlook for China’s growth this year, a note of caution needs to be applied. Export demand …
A version of this report was published as an opinion piece in the Financial Times on Wednesday 7 th June Signs that newly re-elected Turkish president Erdogan is willing to move away from unorthodox economic policies has led to an increase in investor …
The latest crane survey reported a surge in new central London office starts in Q1, which seems poorly timed given a large existing pipeline and waning demand. However a closer look shows that West End refurbishments are behind that surge, as this …
In response to the hawkish shift by RBA Governor Lowe and the further acceleration in unit labour cost growth, we now expect the Bank to lift the cash rate to 4.85% by September. That aggressive monetary tightening will push the Australian economy into a …
The resolution of the debt ceiling debate has cleared a cloud that was hanging over the US equity market, but we think a darker one – a growth slowdown – still lingers. That’s why we doubt the rest of the year will be particularly positive for the S&P …
6th June 2023
Many of the factors that explain the UK’s chronically weak GDP growth since the pandemic, such as the shrinking of the UK’s workforce and low export growth, won’t disappear any time soon. This explains why we expect the UK economy’s underperformance to …
The Reserve Bank of Australia lifted the cash rate by 25bp today and the hawkish tone of the statement suggests that the risks to our terminal rate forecast of 4.35% are tilted to the upside. Indeed, we still think that the Bank will cut interest rates …
Early 2023 data revealed that the German industrial market has slowed considerably following the exuberance of a year ago. And looking ahead the outlook is not much brighter. We were already anticipating a significant moderation of rent growth this year …
5th June 2023
Optimism about a shift towards more orthodox economic policymaking in Turkey has taken hold following the appointment of Mehmet Simsek to the cabinet this weekend. Recent developments look encouraging but the next big test will be whether President …
The recent decline in the number of job vacancies suggests that the upward pressure on wage growth from labour shortages is probably past its peak. But it’s still not clear that wage growth will slow fast enough to ease the Bank of England’s concerns over …
Saudi Arabia pushed through another oil production cut at the OPEC+ meeting, but, it will come at the cost of slower economic growth and we now think the economy will contract by 0.5% this year. The one crumb of comfort is that higher oil prices and loose …
Job vacancies haven’t surged in Japan because the participation rate has risen since the start of the pandemic and there hasn’t been a “Great Resignation” amongst Japanese workers. With the labour market set to loosen this year, wage growth will remain …
In a recent Global Markets Update , we analysed the remarkably narrow rally in the S&P 500 so far in 2023. We concluded that recent history supported our forecast that the rally will run out of steam before long, albeit with the largest firms potentially …
2nd June 2023
It comes as no surprise to see a sharp downgrade to consensus forecasts given the combined impact of the regional banking crisis and growing office sector distress. But despite those downgrades, our own forecasts are considerably more downbeat, …
Although activity in the manufacturing sector looks to have improved somewhat in May, that was mainly due to stronger growth in some large emerging markets. The outlook for industry remains bleak, with new export orders in particular falling sharply. The …
1st June 2023
The latest data suggest that Brazil’s labour market isn’t softening as quickly as we and many others (not least the central bank) had anticipated. That’s keeping wage growth high and, while that may help to support growth in Q2, it will probably deter …
The manufacturing PMIs for May suggest that EM industry has, in aggregate, strengthened in Q2. Nonetheless, with the surveys pointing to further weakness in key DM trading partners, EM industry is likely to struggle in the second half of this year. The …
The re-election of President Erdogan has raised concerns about a possible sovereign default. We think this risk looks low for now, but it would become a bigger threat in the coming years if the current policy mix continues, macro imbalances worsen and …
Although the economy weathered the cost of living crisis much better than most expected, the full force of the cost of borrowing crunch has yet to be felt. And with it looking as though interest rates need to rise further to quash inflation, we think the …
We don’t think that the recent strong gains in Japan’s equity market mark the start of a significant reversal of its decades-long underperformance; we expect it to lag other markets over the rest of this year in local-currency terms and to perform broadly …
In contrast to the deceleration across the rest of Europe, the rise in CEE yields in Q1 was bigger than in Q4, driven predominantly by the industrial sector. As the yield gap with the euro-zone is still narrow and valuations are more stretched that …
The debt ceiling deal constitutes a modest fiscal tightening, principally because it will guarantee the resumption of student loan repayments this summer, but we aren’t worried that the post-deal surge in Treasury debt issuance will push up borrowing …
China’s PMI surveys suggest that the economic recovery is ongoing, but the pace of growth has slowed. While a lower reading for construction activity is a negative for metals prices, the persistent strength of the services sector is consistent with our …
Sri Lanka’s central bank (CBSL) cut interest rates in a surprise move today but we think further monetary loosening will be gradual as concerns about the external position are likely to persist in the near-term. The decision to cut both the Standing …
The April JOLTS data suggest that the gradual easing in labour market conditions continues, which is putting downward pressure on wage growth. Although the job openings rate edged back up to 6.1% last month, from 5.9%, the timelier data from Indeed …
31st May 2023
Consensus becomes more optimistic, but inflation a concern The latest IPF Consensus Survey showed another upgrade to forecasts for total returns in 2023, driven by improvements to both the rental and capital value outlook. A better-than-expected start to …
Although world trade rebounded in March amid the reopening recovery in China, we don’t think this marks the beginning of a broader turnaround in global trade. In fact, timelier data point to renewed falls in April, and the latest business surveys suggest …
The Bank of Thailand (BoT) raised its policy rate by 25bps, to 2.0%, today but given the relatively benign outlook for inflation we think this marks the end of the tightening cycle. Today’s decision was accurately predicted by 17 of 22 analysts polled …
We think that the slump in demand for mortgages will more than offset the support from the high backlog of work and result in a sizeable contraction in euro-zone construction output in the coming quarters. Euro-zone construction output – which accounts …
30th May 2023
High net immigration helps explain why rental growth accelerated to its fastest pace on record last year. Immigration won’t be as high this year, adding to the reasons to think that rental growth has peaked. But strong pay growth, high mortgage rates and …
The upward revision to our Bank Rate forecast suggests that mortgage rates will return to a similar peak as last autumn by the end of the year. That would undermine the recent pick-up in mortgage approvals and lead to renewed falls in house prices. Higher …
April’s money and credit data suggest that the decline in bank deposits in recent months is due to rising interest rates rather than worries about the banks’ stability. Meanwhile, bank lending remained extremely weak. Data released this morning show that …
Many commentators have pinned the recent outperformance of Japan’s stock market on the stronger focus by Japanese firms to maximise shareholder value. But while those efforts showed some success in the run-up to the pandemic, there hasn’t been much …
The labour markets in Norway and Sweden remain very tight, in line with conditions in the euro-zone. This is likely to keep services inflation high over the coming months and encourage the Norges Bank and Riksbank to raise rates further. The labour market …
26th May 2023
Challenges to China’s long-run growth potential that were mounting a few years ago are now evident to all. We continue to expect trend growth to have fallen to around 2% in 2030. We held an online drop-in yesterday to discuss how our views on China’s …
Despite the recent slowdown in China’s reopening recovery, we don’t expect the renminbi to weaken much further against the US dollar. Yield differentials should begin to tilt back in favour of the renminbi as the Fed turns towards interest rate cuts later …
25th May 2023
President Erdogan looks set to secure victory in the second round of Turkey’s presidential election on 28 th May. This Update sets out how we think this would play out in Turkey’s financial markets this year: in short, we think that measures of Turkey’s …
China’s refineries pumped out more oil products than at any point in their history in the first four months of this year. This is perhaps not too surprising given that the removal of COVID-19 restrictions was always going to give a boost in demand. But a …
While it is a hot political potato, well targeted migration could be one part of the solution to the UK’s labour shortages problem. That could help inflation and interest rates be lower than otherwise. Net migration of 606,000 in the year to December 2022 …
The aviation sector is pinning its hopes on sustainable aviation fuel to help cut its carbon footprint over the coming decades. But any ramp-up in biofuel usage would pit aviation against the needs of other sectors and industry officials are becoming more …
The debt ceiling stand-off will probably now drag on into early June, setting up the prospect of a near-default before a bipartisan bill is finally passed by Congress, possibly only after a more serious bout of market turmoil. The risk of a formal debt …
The South African Reserve Bank (SARB) hiked interest rates by 50bp, to 8.25%, today on the back of policymakers’ growing concerns about the inflationary impact of persistent power cuts. For now, we think that today’s move marks the end of the tightening …
The increase in mortgage rates has been the main determinant of the size of house price falls in developed market economies. Very tight supply in the US, and to a lesser extent the UK, has also supported prices in those markets. Employment, incomes, …
Note: We’re discussing potential EM equity outperformance, monetary easing and “friend-shoring” in our next EM monthly online briefing on Thursday, 1 st June. Register here to join. Colombia’s very strong post-pandemic recovery has come at the expense of …
The Bank of Korea today left interest rates unchanged (3.5%) for a third consecutive meeting, and pushed back against the possibility of early interest rate cuts. However, with inflation falling back, the economy struggling and the housing market …
Singapore’s economy is being hit hard by multi-decade high interest rates and elevated inflation. And with external demand set to weaken, we expect growth to be much weaker than consensus projections. The revised estimate for Q1 GDP published today …
The long-awaited inclusion of WTI Midland into Dated Brent is now taking place in a gradual month-long process that started on 2 nd May. The inclusion of Midland could be a factor weighing on the Brent-WTI price spread in the coming months, but we …
24th May 2023
History suggests that in the absence of a major financial shock, central banks usually leave interest rates at their peak for a year or more. That’s consistent with our view that the ECB is unlikely to start cutting interest rates until around the middle …
The Central Bank of Nigeria’s decision to raise its policy rate by 50bp, to 18.50%, reaffirmed that officials continue to focus on tackling high and rising inflation at the expense of supporting the struggling economy. The increasing likelihood of fuel …
