Commodity prices have tumbled as concern about a banking crisis has grown. The downside risks to our forecasts, which we recently attributed to higher interest rates, now include banking sector stress. There has been a renewed fall in commodity prices …
16th March 2023
The direct impact on real estate of the collapse of two US regional banks over the weekend is likely to be relatively small. But we expect lending criteria to become more cautious in the short-term, which will weigh on the supply of real estate debt. …
Investors have taken today’s 50bp rate hike by the ECB as dovish, and the peak deposit rate now priced into markets is between 3% and 3.25%. We think the risks are skewed towards rates going higher than this and the economy performing much worse than …
We have already outlined some different scenarios of how things might evolve from here and it is still possible that the situation calms down quickly. But in this Update , we think through how the more adverse of our scenarios might evolve. There are …
A key channel through which emerging markets could be affected by the strains in the global banking sector is if lending by foreign banks falls sharply. On this front, EMs’ vulnerabilities have eased since the Global Financial Crisis. But there are still …
Bank Indonesia (BI) today left interest rates unchanged (at 5.75%), and signalled that with inflation falling back more quickly than expected, rates would be left on hold over the coming months. In the event that the rupiah comes under sustained …
Tentative signs of stabilisation, but risks abound House prices fell at a slower pace in February and the sharp improvement in the sales-to-new listing ratio offers some hope that they will soon stabilise. While the turmoil in the global banking sector …
15th March 2023
A preferential rate to facilitate wine exports is the latest addition to Argentina’s myriad exchange rates, but it doesn’t address the fundamental problem that the peso is overvalued. We estimate that the currency needs to fall by around 30% to restore …
Even as the economy has slowed nominal all-property rental growth has held up relatively well. But that largely reflects the impact of high inflation, which is now falling. In any event, underlying supply and demand conditions are ultimately the more …
Vietnam’s central bank unexpectedly lowered interest rates late yesterday as it aims to support the struggling economy which has been hit hard by the downturn in global demand and problems in the property sector. We think the central bank will tread …
This year’s Shunto should result in the strongest negotiated pay hikes in decades. But the average Japanese employee will have little to rejoice in. Weaker corporate profits as well as a likely loosening of labour market conditions on account of a …
The Canadian banking sector is heavily concentrated, reducing the risk that deposit runs at small lenders might trigger a broader crisis of confidence for the entire sector. As things stand, the chance of the Bank of Canada soon cutting interest rates – …
14th March 2023
At the time of writing, financial markets appear to be stabilising after the turmoil caused by the collapse of SVB. And it doesn’t look like EMs have suffered large capital outflows or strains in their banking sectors. If this relatively benign scenario …
Given the large amount of uncertainty about how the fallout from SVB’s collapse will evolve, we have grouped possible outcomes into three broadbrush scenarios. Only in the worst scenario of financial problems spreading overseas will the global effects …
This checklist helps clients keep track of the key forecasts announced during the Spring Budget at 12.30pm (GMT) on Wednesday 15 th March. Our more detailed preview is here . We will send a Rapid Response shortly after the speech, we are hosting a “Drop …
Australian banks are unlikely to experience the same valuation losses that resulted in the demise of Silicon Valley Bank. The biggest risk is that a freezing up of overseas bond markets shuts down funding avenues for the major banks, but the Reserve Bank …
Even if the collapse of several mid-tier banks doesn’t develop into a full-blown systemic crisis, it will more than likely trigger a credit crunch. That raises the risk that the economy will suffer a harder landing, which would accelerate the needed …
13th March 2023
The restoration of diplomatic ties between Saudi Arabia and Iran adds to signs that geopolitical tensions in the Middle East are easing, which may help to reduce risk premia in financial assets in the region as well as the oil market. Tensions will not …
This Global Economics Update answers 5 key questions about the fallout from SVB’s collapse. While the situation remains in flux, there are good reasons to think that it does not call into question the solvency of the US or wider global financial system …
The circumstances of the Silicon Valley Bank (SVB) collapse are unique enough that it probably won’t trigger a widespread financial contagion. Nevertheless, it is a timely reminder that when the Fed is singularly focused on squeezing inflation by jacking …
10th March 2023
Failed dockworker union negotiations on the West Coast have led to further diversion of US imports toward the East and Gulf Coasts, supporting warehousing demand in those markets for longer than expected. We expect a degree of this demand to persist into …
There were some surprises in the Q4 commercial real estate data from the euro-zone, in particular in how swiftly yields have risen. Taken together with changes to our economic view these imply further downgrades to our forecasts. Notably we now think that …
The Bank of Japan didn’t make any policy changes at Governor Kuroda’s last meeting today but we expect incoming Governor Ueda to abandon Yield Curve Control in April . While that decision was widely anticipated, we were among the few who predicted the …
The South African rand has weakened sharply against the US dollar so far this year, markedly underperforming other emerging market (EM) currencies. We expect domestic and global headwinds to drive a bit more depreciation, to 19.0/$, later this year. But …
9th March 2023
The Fed is clearly trying to avoid a premature easing in financial conditions and a repeat of 1970s-style “stop-go” monetary policy. This Update discusses some lessons from that period for equity markets today. Equities have struggled over this week, …
The US may not have a monarchy, but cash has arguably become its proverbial king of investments. If history is a guide, it is a reign that is likely to feature equities underperforming bonds amid a recession. Last November, the yield of a 3-month Treasury …
The Italian industrial market saw its sharpest fall in capital values on record last year, owing to a surge in yields in Q4. But with valuations still stretched and investor demand weakening, we think yields will climb higher. And with rent growth …
We expect industrial completions to exceed 3.5% of inventory this year, despite the first quarterly drop in space under construction in Q4 for over two years. But new starts are already slowing and with higher interest rates, elevated construction costs …
Demand growth for industrial metals slowed to a halt at the end of last year. Even with some more recent improvements in advanced economy activity growth, metals demand probably kicked off the year on a weak note. Coupled with the prospect of “higher for …
The numerous “plans for growth” that have been announced by the Government, the Opposition, and various commentators in recent months vary in their analytical rigour but all miss one crucial point: many of the reforms required to lift the UK’s pitifully …
For most economies in Emerging Asia it will be local factors, not the actions of the US Fed, that determine the next moves by the region’s central banks. Given the poor outlook for economic growth in Asia, policymakers are unlikely to respond to a more …
We think MSCI’s India Index will fall over the next couple of quarters in local-currency (LC) terms, amid subdued domestic economic activity and a general deterioration in investors’ appetite for “risky” assets. While it was among the best performers in …
Malaysia’s central bank (BNM) left its policy rate unchanged today (at 2.75%) and with the economy likely to remain weak and inflation set to fall back further over the coming months, we expect rates to stay on hold for the rest of the year. Today’s …
Fed Chair Powell’s testimony to Congress has prompted a material revision to our forecast for the path of the fed funds rate and suggests the near-term risks to that forecast are skewed to the upside. This Update sets out some of the likely implications …
8th March 2023
The JOLTS survey showed a drop back in job openings in January, with the timelier job postings data from Indeed pointing to a more marked deterioration in labour market conditions in February. (See Chart 1.) The private job openings rate has …
The Bank of Canada kept its policy rate unchanged at 4.5% today as expected but, with one eye on the strength of the recent US data and the Fed’s hawkish reaction to that, it sounded less confident that it could maintain the conditional pause in rates …
The National Bank of Poland (NBP) left its main policy rate on hold as expected today, at 6.75%, and we don’t think policymakers will rule out further rate hikes just yet (today’s statement gave little away in terms of guidance). But with inflation likely …
JODI data on global oil and natural gas consumption show that global energy demand was weak in late 2022. China’s rapid reopening will likely boost demand for both. But plenty of downside risk remains. Advanced economies are either in the midst of a sharp …
Headline inflation in Mexico will continue to fall back over next couple of years, but strong wage growth means that it won’t return to Banxico’s 2-4% tolerance band until late-2024. Against that backdrop, we think the central bank will deliver two more …
A record amount of industrial space is currently under construction, which looks poorly timed given the upcoming recession. However, the sector is entering the downturn in a strong position with very low vacancy. And we expect the share of online retail …
The National People’s Congress (NPC) reports struck a cautious note on the outlook for economic activity in China this year. Fiscal stimulus will be limited and efforts to prevent “disorderly” expansion in the property sector are to continue. That said, …
The very high household saving rate in Czechia and the sharp fall in inflation we expect there this year means there is scope for consumer spending to recover over the coming quarters. But we think consumers will still exercise caution and that a …
Higher rate expectations drag many commodity futures curves lower Most commodity prices fell and futures curves shifted lower this past month as higher interest rate expectations in advanced economies clouded the demand outlook. This is consistent with …
7th March 2023
Fed Chair Jerome Powell confirmed today that interest rates are set to rise higher than we previously anticipated. But with most evidence still pointing to economic weakness and markedly lower inflation this year, we still believe the Fed will begin …
China’s imports were weak in January-February, but commodity imports fared better. What’s more, we think crude oil imports, in particular, will pick up from here given the resurgence in travel demand. China’s January-February trade data (published today) …
The Reserve Bank of Australia signalled that further tightening will be needed when it hiked the cash rate to 3.60% today and we’re sticking to our forecast that the Bank will lift the cash rate to 4.10% by May . The RBA’s decision to lift the cash rate …
In this Update we examine the implications of affordability for house prices at the market level. Despite sunbelt markets seeing the strongest house price growth over the past couple of years, affordability looks most stretched in the West. This has been …
6th March 2023
Non-performing loan (NPL) ratios have risen by as much as 4-5%-pts during non-banking crisis downturns in EMs in the past. This time around, there are reasons to think that the increase will be smaller and EM banks generally look well placed to cope. But …
Germany is more vulnerable than most advanced economies to a reduction in trade with China both because of the scale of trade and the use of Chinese-made inputs to its large manufacturing sector. We have highlighted in our Spotlight series that the …
With labour productivity falling the most on record over the past year, unit labour cost growth has surged even as hourly earnings growth has remained sluggish. While we expect productivity growth to rebound, we also expect hourly earnings growth to …
