Central bankers have struck a hawkish tone at the ECB’s forum in Sintra this week, suggesting that rates haven’t yet peaked and cuts are not on the cards for some time. But there were some interesting differences in tone. Most notably, the ECB and BoE …
28th June 2023
The sharp narrowing in India’s current account deficit in Q1 was largely due to the strength in services exports. Looking ahead, we think the deficit will narrow to 1.0% of GDP across 2023 as a result of softer domestic demand and as commodity prices …
The effects of tighter monetary policy are very clear in the money and credit data, reinforcing our view that the euro-zone economy will underperform the ECB and consensus forecasts. Data released this morning show that savers continue to tie up their …
The Bundesbank may make large losses in the coming years but these will be paper losses only, will have no impact on the government’s fiscal position, and are likely to fall over time. While the losses may fuel opposition to the ECB in some quarters, this …
26th June 2023
Pakistan’s central bank (SBP) today raised its policy rate by a further 100bps (to 22%) at an unscheduled monetary policy meeting. We think interest rates will need to remain elevated over the coming year as the government seeks to impress the IMF and …
EMs will account for over half of global GDP within the next decade and almost 60% by 2050. India will become the world’s third-largest economy before 2030. More generally, EMs with rapid population growth, with potential to develop into manufacturing …
The armed uprising by Yevgeny Prigozhin’s Wagner mercenary group against the Russian military over the weekend has dealt a heavy blow to President Putin and exposed cracks in the regime. There are a lot of unknowns about how things will play out at this …
After several disruptive quarters, we are making few changes to our near-term euro-zone real estate forecasts. Nonetheless, a higher profile for 10-year rates has led us to push back yield reductions until after 2025 and we have also downgraded our office …
At first glance, there’s little sign of friend-shoring among Japanese firms as they have directed a rising share of their outward foreign direct investment at China. However, this largely reflects China’s rising economic heft and firms are reducing their …
June’s flash PMIs suggest that not only has activity in advanced economies slowed at the end of Q2, but the outlook has also deteriorated further. This is particularly true in the manufacturing sector, where orders have fallen sharply. Meanwhile, …
23rd June 2023
With interest rates now set to be higher for longer, we are sticking with our view the UK will enter a recession later this year. That will hit occupier demand across all property sectors, but industrial should weather the downturn relatively well. After …
Swiss offices have already seen the second sharpest price correction across the major European markets. And with stretched valuations set to face renewed pressure from rising bond yields, we think office yields will edge higher and that sluggish rent …
If the weather forecasters are right, El Niño conditions have arrived in the Pacific and are set to build over the next few months. The negative impact on agricultural production will depend upon the strength and duration of these conditions but sugar, …
The Central Bank of Egypt (CBE) decided to leave interest rates unchanged at 18.25% at Thursday evening’s MPC meeting, but with the lingering threat of another fall in the pound and the slightly more hawkish tone from the accompanying statement, we think …
Near-term risks ease, but still high Easing financial conditions, improving consumer sentiment and the stabilisation in housing suggest that the risks of an imminent recession have eased slightly. Nonetheless, our tracking models still imply that an …
22nd June 2023
The reduction in office demand due to remote work will cause a hit to NOIs on a par with, or worse than, that experienced by malls over the last six years. And in line with the experience of malls, the structural nature of this hit to demand means the 35% …
The rapid depreciation of the Swedish krona has pushed the currency down to its lowest ever level against the euro. Worse still, we do not think the krona is significantly below “fair value”, nor do we expect the headwinds facing it to abide anytime soon. …
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday, 19 th July . Register here to join that 20-minute online briefing. The 50 basis point (bps) interest rate rise by the Bank of England today, …
The 650bp interest rate hike by Turkey’s central bank today (to 15.0%) will underwhelm investors that wanted a faster and more aggressive monetary tightening. The currency has come under a bit of pressure since the announcement. But the communications …
Some observers have suggested that the strength of Swedish inflation in May reflected buoyant demand driven by Beyoncé’s Stockholm concerts but the Riksbank is more likely to view it as evidence that underlying price pressures are too high. We expect a …
The 25bp rate hike announced by the SNB this morning was smaller than the 50bp hike we had predicted. But the accompanying statement and upward revision to inflation forecasts for 2024 and 2025 strongly suggest that there will be at least one more hike in …
Today’s 50bp rate hike by the Norges Bank, taking its policy rate to 3.75%, was accompanied by new hawkish guidance and projections. As a result, we have revised up our already above-consensus forecast for the peak in the policy rate to 4.25%. It could …
The somewhat cautious tone of the statement accompanying yesterday’s Brazilian central bank meeting (at which the Selic rate was left at 13.75%) will disappoint those hoping for an interest rate cut at the next meeting in August. But the statement does …
Note: We’re holding a 20-minute briefing on the challenges that aviation and other key industries face in decarbonising at 10:00 EDT/15:00 BST on Thursday, 29th June. Register now . Despite jet fuel being a fairly small share of total oil consumption, …
21st June 2023
Treasury volatility has fallen over recent weeks but remains high by historical standards, and we wouldn’t be surprised if it remained so over the rest of 2023 even after the Fed has concluded its tightening cycle. All else equal that could put upwards …
Our new Dashboard allows clients to track the key housing market indicators that we follow in real time. (See here .) This Update outlines what has driven recent developments in these indicators, and our view for the rest of the year. (See also our US …
Governments in Turkey and Nigeria have started to turn away from unorthodox economic policies in recent weeks, and in both cases currencies have been allowed to move closer to fair value. The key thing to watch next is whether central banks in both …
The Reserve Bank of Australia is considering actively selling its bond holdings rather than merely letting them shrink gradually via bond redemptions. The main motivation seems to be to reduce interest rate risk on its balance sheet rather than to tighten …
Since bottoming out late last year, European and US equities have fared comparably in local-currency terms, and European stocks have even outperformed in dollar terms. Looking ahead, however, we think that the lack of AI (or indeed tech) “champions” in …
20th June 2023
The Monetary Policy Report released by Chile’s central bank today alongside the communications to yesterday’s policy meeting have reinforced our view that the easing cycle will commence in July. We expect a cumulative of 200bp of cuts, to 9.25%, this …
A series of high-level diplomatic meetings this week have raised hopes that strains in US-China relations will start to ease. But the politics of fragmentation was never likely to proceed in a linear direction. And even if there is a thaw in political …
We don’t think growing enthusiasm about AI will be enough to stop the S&P 500 from declining if, as we expect, the US economy falls into recession later this year. Nonetheless, we now think the index will end this year a bit higher than we’d previously …
We think that the lead price will struggle over the next few months as high interest rates weigh on new vehicle (and lead-acid battery) demand growth and new supply comes online in Australia and Germany. Heading into 2024, we think that the shift to …
19th June 2023
Housing continues to shrug off high interest rates The recovery in house prices continued in May, with the sales-to-new listing ratio pointing to further gains ahead. Rising interest rates will have a more limited impact on home purchases than existing …
Note: We’re talking inflation and the BOJ, slowing Indian growth, and regional monetary easing in our Asia Drop-In on Thursday, 22 nd June. Register now . The female participation rate has surged over the past decade but more favourable attitudes among …
At face value, the recent improvement in market sentiment indicators supports the view that the worst may be past for housing. But looking deeper, we think this largely reflects supply-side improvements and will not be enough to prevent further weakness …
16th June 2023
We now suspect growing euphoria over AI will drive the S&P 500 to a significantly higher level than we had previously forecast by the end of next year. In the meantime, though, we still think a mild economic downturn may take some heat out of the stock …
The latest MSCI data indicate that values in western European office markets have held up better since the start of the pandemic when compared with the US and UK. But given these cities face similar long-term problems, we remain downbeat about the …
Despite faltering commodity prices and growing concerns around China’s economic rebound, most commodity currencies have held up reasonably well this year. But we continue to think that will change in the second half of 2023 as advanced economies slow …
How low Fed and ECB policy rates will go, when they are eventually normalised, is at least as important for financial markets as the precise timings of the ends of tightening cycles, in our view. We think both central banks will cut deeper than investors …
EM goods exports held up relatively well at the start of the year but more recent data suggest that resilience is waning. With demand from advanced economies set to soften, the boost from auto exports likely to fade and gains in commodity prices likely …
Note: We’re talking inflation and the BOJ, slowing Indian growth, and regional monetary easing in our Asia Drop-In on Thursday, 22 nd June. Register now . The Bank of Japan left its monetary policy settings and assessment of the economy unchanged today. …
Although we no longer expect Gilts to outperform in local-currency terms, we do think they’re set to hold up better against Treasuries and Bunds over the rest of this year than they have done lately. Gilts have seen a renewed sell-off lately. The 10-year …
15th June 2023
The ECB raised its deposit rate to 3.5% today and President Lagarde all but promised another hike next month. Our baseline forecast remains that interest rates will peak in July and stay there until the middle of next year but the chances of another hike …
In our Focus of Sept ember 2020, we made some assumptions about how the pandemic would impact working from home in office-based sectors across Europe. Almost three years on, we look back at these to assess how they have held up and analyse the …
The recent resilience of labour markets partly reflects a lag before higher interest rates feed through fully to economic activity. But employment has also been supported by the industry-led nature of the economic slowdown and by the fact that firms are …
The tightening of labour markets across Latin America in the past year or so has fuelled rapid wage growth in many economies and wage growth is likely to remain uncomfortably high for a while yet. Against this backdrop, even as central banks kick off …
We think the Norges Bank will follow through on its plan to raise its policy rate by 25bp next week, to 3.50%, although there is an outside chance of a 50bp hike. Either way, we think it will push its interest rate forecast up, showing a peak in the …
Taiwan’s central bank (CBC) today kept its main policy rate unchanged (at 1.875%), but with the economy struggling and inflation set to fall further, we expect it to start cutting rates in September. The decision today was correctly predicted by 19 of …
EMs experienced a strong first quarter as GDP growth picked up almost across the board, but growth is likely to have slowed in most major economies in Q2 and we think it will remain soft in Q3. We don’t expect a substantive recovery in EMs until much …
