Sri Lanka’s central bank (CBSL) kept interest rates unchanged today, and we expect it to leave rates on hold for the rest of the year as it aims to strike a fine balance between supporting a struggling economy and clamping down on high inflation. The …
25th January 2023
The flash PMIs for January provide further evidence that the euro-zone economy has so far avoided the deep downturn that most economists anticipated, whereas the US and UK surveys still point to recessions in both cases. Supply shortages have become less …
24th January 2023
A closer look at Spain’s inflation data shows that there are significant measurement difficulties affecting both energy and core price data. However, we still expect measured headline inflation to remain lower in Spain than in most of the euro-zone and …
Recent data have shown that activity in the US is weakening as we had expected while that in the euro-zone has been surprisingly resilient. The resilience seems to reflect a combination of supply and demand factors, including easing shortages, lower gas …
The Central Bank of Nigeria (CBN) raised the benchmark rate by 100bp, to 17.50%, today in a surprisingly aggressive decision. But with incoming data likely to add to evidence of easing price pressures, we are not convinced that this hawkish tilt will …
While China’s reopening has improved the prospects for copper demand, the price has, in our view, surged by more than can be justified by developments there alone. We expect the copper price to drop back over the next few months as several advanced …
Pakistan’s central bank (SBP) raised its policy rate today by a further 100bps (to 17.0%), and we expect more tightening over the coming months amid concerns about high inflation and the worsening external position. Interest rates have now been raised …
23rd January 2023
Near term economic headwinds suggest the slowdown in investment activity in Scandinavia will continue in 2023. However, with policy rates near a peak, and improving economic activity and falling bond yields expected later in the year, we think that the …
We expect the slowdown in investment activity in the second half of 2022 to persist into the first half of 2023. But we think transactions will begin to recover later this year once interest rates have topped out and much of the valuation adjustment has …
20th January 2023
We now think German industry will continue to grow in the coming months as lower gas prices, easing supply shortages and high backlogs of orders support production. One of the reasons for the resilience of the German economy in the face of the energy …
With inflationary pressures easing and the global growth outlook improving, we no longer expect the US dollar to breach its late September peak. But we still think that souring risk appetite associated with recessions in developed markets will boost the …
The Year of the Rabbit that begins on Sunday will see a revival in outbound tourism from China that we expect to be stronger than recoveries seen elsewhere. China is reopening into a world that has already dismantled most virus controls. Its state-owned …
While the Bank of Japan pushed back against expectations that it would end its Yield Curve Control (YCC) policy yesterday, we think it is only a matter of time before YCC bites the dust. That suggests further upward pressure on the yield of JGBs and the …
19th January 2023
The Fed’s hawkish transformation has been so marked that, if its forecasts are to be believed, over the next couple of years it would effectively be adopting the same reaction function last followed during the Greenspan and Bernanke eras between 1987 and …
The theme of global economic fracturing, which was the focus of our Spotlight Series of research last September, is at the centre of economic discussion in 2023, including at Davos. We held an online drop-in session yesterday to update clients on our …
The account of the December meeting, along with data released since then and recent comments from policymakers, suggest the ECB will raise its deposit rate from 2% to 3% by March rather than May as we had previously expected, and that QT will accelerate …
Moderating core price pressures, the continued fall in inflation expectations and the sharp decline in wholesale natural gas prices mean we think inflation in Central and Eastern Europe (CEE) will fall a bit more quickly in 2023 than we had anticipated a …
Bank Indonesia (BI) today raised interest rates by a further 25bps (to 5.75%) but also appeared to signal there would be no further rate increases this year. We are changing our forecast in response, and now think the tightening cycle has come to an …
The Norges Bank eased off the brakes today by leaving policy on hold, but signalled that it will raise its policy rate at the next meeting in March. We suspect that will be the final hike in this tightening cycle, but the risks are skewed towards …
Malaysia’s central bank (BNM) unexpectedly left its main policy rate unchanged today (at 2.75%), but appeared to leave open the possibility of further rate hikes later in the year. However, with growth set to slow and inflationary pressures easing, we …
The powerful re-opening rally in China’s stock market has eroded a large part of the valuation gap that led us to judge that equities there were relatively appealing a couple of months ago. That said, we think there’s still some scope for it to continue …
18th January 2023
The election of left-wing candidate Lula for a third term as Brazil’s president is unlikely to accelerate Petrobras’ sluggish shift towards large scale biofuel production. We expect proposed oil sector reforms to weigh on biofuel demand, while ongoing …
The recent falls in the Egyptian pound pose a threat to Egypt’s fragile public debt dynamics but we think that the government will be able to muddle through. The key risk is that the government shifts fiscal policy in a looser direction, which could …
Movements in REIT pricing provide a good indication of where property capital values are heading. And the latest data are consistent with our expectation that all-property values will see a peak-to-trough fall of around 20% by the end of this year. But …
The BoJ kept policy settings unchanged today, but the increase in its medium-term inflation forecasts supports our view that Yield Curve Control will be abandoned once a new Governor takes over in April . Following the unexpected widening of the tolerance …
The shortage of new housing caused by the government’s HomeBuilder grant is showing signs of easing. That means that the housing downturn should soon start to weigh on homebuilding in earnest and that new dwellings inflation will continue to slow. The Q3 …
We think that the prevailing yields of high-grade 10-year government bonds in other major developed markets (DMs) support the idea that the 10-year Japanese government bond (JGB) yield would rise a bit further, were the Bank of Japan (BoJ) to end its …
17th January 2023
House prices fall further despite lower new listings The large fall in new listings in December failed to prevent another sizeable drop in house prices, but the improvement in the sales-to-new listing ratio offers some hope that the downward pressure on …
The surge in FDI inflows to a 15-year high in Central and Eastern Europe (CEE) last year will partly unwind this year given the weaker global macro backdrop. But we think that a large part of the increase reflected structural forces, which will keep FDI …
We think the yield of 10-year Japanese Government Bonds (JGBs) would rise to at least 1% if the Bank of Japan (BoJ) decided to abandon Yield Curve Control (YCC), which could conceivably happen as soon as tomorrow. But we wouldn’t be surprised if it ended …
Raising the federal debt ceiling later this year will require bipartisan compromise, most likely involving measures to reduce the budget deficit modestly. But a deal probably won’t be reached until the last minute, raising the risk that the deadline to …
It looks highly likely that Tunisia’s government will this year follow in the footsteps of Sri Lanka and Ghana by defaulting on its external debts. Fortunately, public debt risks elsewhere don’t look as acute. But while the focus is on sovereign …
Output from Franc e’s beleaguered nuclear industry jumped last month, raising hopes that a recovery is underway. However, we think any increase in France’s nuclear output this year is likely to be modest and will probably be offset by reactor closures in …
The process of “global fracturing” that we outlined in our annual Spotlight series last year will remain the dominant macro theme for the next decade. But speculation that it will result in the rise of a “petroyuan” on a scale sufficient to challenge …
Office markets started to lose momentum at the end of last year and the expected weakness in employment this year suggests the slowdown will continue. That said, we think prime rents will avoid falls in most euro-zone markets, though the risks to this …
Recent data suggest that Nigeria’s economy was struggling even before demonetisation efforts hit activity late last year. And we don’t expect economic news to take a turn for the better any time soon as further disruptions are likely no matter who wins …
Widespread unrest across several regions in Peru could make the central bank’s job of reducing above-target inflation even more difficult while also threating to hamper activity in some of the country’s key industries, such as mining and tourism. Peru’s …
16th January 2023
The fall in Spanish gas and electricity prices that has already happened is likely to cause energy inflation to slump to minus 20% in the coming months and this in turn will pull headline inflation below 2%. Core HICP inflation will probably also remain …
The recent resilience of the economy to the dual drags of high inflation and higher interest rates doesn’t mean the pain has been avoided. Instead, our analysis suggests that higher interest rates will become a bigger drag on activity in the most …
China’s rapid reopening and the likelihood of policy stimulus there has improved the macro-economic backdrop for commodities in 2023. But with developed economies in recession, and a somewhat stronger dollar and weaker US equities in Q1, we think a …
Housing downturns are well underway in many countries and house prices and activity generally have further to fall. Construction activity is already suffering as a result. While it is hard to detect any major adverse effect on household spending, this …
This Update makes four key points about corporate earnings in the US as the Q4 results season gets into swing. They all feed into our view that the S&P 500 will remain under pressure until the spring and underperform Treasuries as a recession there begins …
13th January 2023
We have revised up our forecasts for equities in China, given a brighter outlook for the economy there. We have also increased our China 10-year sovereign bond yield forecast for end-2023, as we think that a faster economic recovery will lead to tighter …
While the medium-term outlook for the renminbi and other Asian currencies has improved, and we have revised some of our forecasts accordingly, we continue to anticipate that a deterioration in risk sentiment as other major economies slide into recession …
While euro-zone equities face some meaningful short-term headwinds which threaten their recent run of outperformance, we still expect them to fare better than US equities over the next couple of years. Euro-zone equities broke a long run of …
Commodity imports generally rose in December, but fell in 2022 as a whole. In a possible sign of optimism around reopening, soybean imports skyrocketed. China’s unexpectedly swift switch to living with COVID should see commodity imports, particularly …
The euro-zone economy held up a bit better than we expected at the end of last year. On balance, the data point to GDP flat-lining or contracting only slightly in Q4. Germany’s statistics office this morning published its first estimate of GDP in 2022, …
The recent commencement of stricter office EPC legislation in the Netherlands has raised concerns that Dutch office valuations may be on the edge of a regulatory precipice, given the large proportion of non-compliant stock. However, we think the …
The Bank of Korea today raised interest rates by a further 25bps (to 3.50%) and relatively dovish comments by Governor Rhee support our view that the tightening cycle is now over. With growth set to struggle and inflation likely to fall back further, we …
Further big falls in inflation seem now to be discounted in major developed markets, especially the US. That helps to underpin our view that high-grade government bond markets will only rally a little further over the remainder of this year even if, as we …
12th January 2023
