The Bank of Israel (BoI) slowed down the pace of tightening today with a 50bp rate hike, to 3.25%, as it emphasised the tightening delivered so far and the early signs that economic activity is slowing. We think it will end its tightening cycle early next …
21st November 2022
High oil prices have led to a recovery in US oil investment this year. But US crude production gains have been tempered by rising business costs and an emphasis on returning profits to shareholders. We expect the situation to be similar next year, with US …
Russia’s agreement to extend the Black Sea grain deal with Ukraine should help to keep a lid on wheat and corn prices over the coming months, reducing upward pressure on inflation in the emerging world and alleviating economic imbalances. Countries that …
Wage growth in Germany will be far lower next year than some headlines about recent wage deals suggest, but it will still rise above levels compatible with core inflation of 2%. German unions demanding and, in some cases, securing pay rises in the region …
18th November 2022
Our downbeat economic forecasts for the euro-zone underpin our view that equity markets there will fall further in the coming months. Within the region, we think the downside risks for equity prices are largest in southern Europe. Even after falling by …
The cost-of-living crisis will have an impact on UK high streets for much of the next year. That will not be helpful for retail property rents, although given they are starting from a low base, we think the sector will avoid the meltdown of the pandemic …
The October inflation data highlighted a contrast between the US and Europe, with core price pressures easing materially in the US but staying stronger in the euro-zone and UK. We think this will be an enduring feature of relative inflation prospects in …
High carry emerging market (EM) currencies have generally fared better than their low carry counterparts over recent months, but we doubt this will continue. We think currencies in EM Asia will fare best over the next two quarters, despite their low …
Having increased sharply throughout the year, we think that emerging market (EM) local currency sovereign bond yields will probably only increase by a little more in the first half of next year, despite a looming world recession. Yields may then start to …
Our current view is that we see a mild recession in H1 2023, but if we were to see a more substantial drop in GDP, we think the extra downside impact would be felt most in the apartment sector. Indeed, if GDP were to fall by an additional 1% …
17th November 2022
Bank Indonesia (BI) today raised interest rates by a further 50bps (to 5.25%) and we think further hikes are likely as the central bank looks to support the rupiah and clamp down on inflation. In its press conference the central bank stated that …
Recent policy announcements have raised hopes that the property downturn may be coming to an end. But while the measures made public so far reduce some of the downside risks by giving developers and their creditors a little breathing room, they fall short …
The central bank of the Philippines (BSP) today raised its main policy rate by a further 75bps (to 5.0%), and we think further tightening is likely in the near term. But with inflation having probably peaked, headwinds to the recovery mounting and the …
Weak new home sales weigh on housing starts The plunge in new home sales in Toronto in September points to further falls in housing starts, although there are at least some signs that the worst may be behind us for home sales and that the pressure on …
16th November 2022
We suspect the underperformance of US equities that has accompanied the US dollar’s slump so far this month will become a feature from mid-2023, as the currency eventually comes under sustained pressure. Since the end of October, MSCI’s USA Index has …
Euro-zone industrial production and GDP have been stronger than we had expected so far this year. Several factors have contributed to this, but one of them is the distortions to Ireland’s economic statistics. The picture in the rest of the euro-zone is …
The negative correlation between the US dollar and the price of oil has reasserted itself in recent months, and we think it will persist as the looming global recession pushes the dollar higher and oil price lower. Although the price of oil hasn’t risen …
The small increase in vacancy in Q3 supports our view that the rental market is turning a corner and makes us increasingly confident in our call that rents will fall next year. Conditions remain tighter in the homeowner market. But higher interest rates …
Foreign capital inflows into EM financial markets have risen sharply so far this month, as investor risk appetite has improved. But with the global economy set to enter recession, we aren’t convinced that this will last as EMs are likely to find it more …
Morocco has been hit hard by the spillovers from the war in Ukraine and, while its external strains aren’t anywhere near as sever as those in Egypt and Tunisia, we think the authorities will need to resume their shift to a more flexible exchange rate …
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Autumn Statement at 11.30am on Thursday 17 th November. We will send a Rapid Response shortly after the speech, we are hosting a …
Malaysia heads to the polls on Saturday for a general election which, if the latest opinion polls are correct, will lead to a further period of unstable and fractured politics. This reduces the chances of meaningful economic reforms being passed and …
The recent surge in rental growth to a record high has been widely reported, but the usual explanations are unsatisfactory. Population indicators don’t suggest a sudden rise in demand, and there is little evidence of landlords selling up. Instead, we …
Even as Central London office vacancy rates rose to a 12-year peak in Q3, annual rental growth ticked-up to a three-year high. That marks a reversal from the situation prior to COVID-19, when a tight market failed to spark a strong rise in rents. But we …
15th November 2022
This week’s G20 summit in Bali, Indonesia, has so far exceeded low expectations. There is broad condemnation of the war in Ukraine and bilateral talks between China and the US seem to have been amicable. But with the meeting dominated by geopolitical …
Although credit growth in advanced economies remained strong in September, it has largely been used to help economies cope with the effects from rising costs and inflation. But lending criteria is now tightening and demand for loans – particularly …
We’re sticking with our view that the equity market rally will go into reverse as the world economy slips into a recession. Equities surged last week, boosted by a soft US CPI print . The ~5.5% gain in the S&P 500 on Thursday, for example, was its largest …
14th November 2022
While Colombia’s President Gustavo Petro initially made a promising start to his tenure, his recent interventionist comments have led to a sharp sell-off in local financial markets. Regaining investors’ trust while navigating the economy through a period …
Romania’s current account deficit, which is among the largest in the EM world, has continued to widen this year and now exceeds 9% of GDP. It is reassuring that much of the deficit is currently being financed by relatively stable forms of capital inflows. …
We think the combination of subdued domestic activity and an economic downturn in most major economies will hurt demand for Chinese economic output in the coming months, prompting lower production and therefore import volumes of agricultural commodities. …
Despite the recent sharp drop in the greenback, we doubt this is the end of the dollar bull market. Yesterday’s softer-than-expected US CPI print prompted the largest single-day drop in the DXY index since December 2015. Indeed, it was one of only a …
11th November 2022
The global recession will drag on zinc consumption even further in the coming months, probably leading to renewed price declines. But, towards the end of 2023, supply concerns should push the price higher. Even though the price of zinc has risen recently, …
The news that the authorities in China plan to “optimise” their response to the pandemic while not abandoning their zero-COVID policy has coincided with a surge in its stock market. There is still a risk that this somewhat lighter-touch approach will lead …
We don’t expect the 10-year JGB yield to rise above the top of the Bank of Japan’s tolerance band, and think it may even fall back to the middle of that band next year as yields continue to decline elsewhere. Yields fell sharply around the world, and the …
As the global economy enters recession, the outlook for natural rubber (NR) demand appears bleak. What’s more, stocks are already high. We expect prices to fall further in the near term, before some recovery in late 2023 on hopes of monetary easing and a …
The dramatic improvement in EM public finances since the height of the pandemic is starting to run out of steam. And we think that fiscal dynamics are likely to get worse next year in parts of Central Europe and in most commodity-producing countries. …
Falls in Paris prime retail rents are set to continue into 2023 as weaker domestic and foreign spending weigh on tenant demand. And while the prospects for both are brighter for 2024, we think the high level of vacancy will ensure only a modest rebound in …
China’s equities have received a boost recently from speculation that the country will ease its strict zero-COVID policy, but we don’t think this marks the start of a more sustained rally; we forecast benchmark Chinese equity indices to fall over the next …
10th November 2022
While the renminbi, and many other currencies sensitive to the outlook for China’s economy, have rallied sharply against the dollar on hopes that China will shift away from its “zero-COVID” policy (and today’s softer-than-expected US CPI print), we doubt …
We doubt the recent underperformance of UK high-yield corporate bonds relative to those in the euro-zone will continue given the relative outlooks for monetary policy and economic growth. Corporate bond yields in developed markets (DMs), as measured by …
Nigeria’s demonetisation efforts are likely to add to already-high economic costs of the country’s unorthodox policies. The resulting currency falls will fuel inflation further and disruptions to activity are more or less inevitable, supporting our …
A shift away from zero-COVID would be positive for China’s economy over the medium term. But the immediate disruption of reopening would probably exceed the cost of keeping the policy in place, especially if vaccine coverage among the elderly hadn’t …
Widespread downgrades, but still well short of the negative returns we expect Consensus forecasts for 2023 have been downgraded pretty sharply since the Spring, but we don’t think they have gone far enough. While the consensus is predicting total returns …
We still expect consumer spending to rise rapidly over the coming year. But with many overseas trading partners entering recession, exports will decline. That will prompt firms to pull in their horns and weigh on business investment. The upshot is that we …
While mobile and other digital payment methods are still used less in India than in many EMs, the rapid expansion initially triggered by the pandemic has continued over the past year. A well-developed payments infrastructure should support continued …
9th November 2022
The recent IMF deals reached by governments in Egypt and Tunisia are positive developments and will help ease balance of payments strains in both countries. Egypt has already made progress with meeting the IMF’s demands and restoring macro stability, …
The ECB might start quantitative tightening next year but that’s not guaranteed, and even if it does so we doubt that it will make much of a dent in its government bond holdings. As a result, interest rates will remain the most important tool for …
Spanish office rental values are expected to be harder hit than the euro-zone average as the looming recession weighs on occupier demand and higher interest rates push up yields. However, at a market level, Barcelona is most exposed given its looser …
US petroleum product prices have risen again, mainly due to refinery-side supply constraints. We think this will translate into fewer product exports, but potentially even more crude oil exports. As we expected, US wholesale fuel prices have remained …
8th November 2022
The Fed’s mounting losses are an expected result of surging interest rates and will not prevent officials from continuing to tighten policy, nor will they require the Treasury to step in and “recapitalize” the central bank. But it does mean that …
