The Czech National Bank (CNB) became the first major EM central bank to end its tightening cycle after it left its policy rate on hold at 7.00% today. The communications were not as dovish as we had expected, but the new-look MPC is clearly less inclined …
4th August 2022
While raising interest rates by 50 basis points (bps) today, from 1.25% to 1.75%, the Monetary Policy Committee (MPC) suggested that rates will probably have to rise further to knock on the head the recent rises in price/wage expectations, but that a …
The statement to yesterday’s Brazilian central bank meeting, at which the Selic rate was hiked by 50bp to 13.75%, made clear that Copom is more confident that inflation will fall back and also more concerned about the slowing economy. We remain of the …
The trade sanctions introduced by China on Taiwan in retaliation for the visit of Nancy Pelosi are small in scope rather than serious efforts to force Taipei to shift course. China is constrained in the economic pressure it can exert unless it is willing …
3rd August 2022
Having fallen sharply in Q2, we think that the gold price is now close to a cyclical trough. What’s more, the price should revive a little in 2023 as markets factor in the prospect of US monetary tightening . We always expected the price of gold to fall …
Western sanctions have caused activity in certain sectors of Russia’s economy to collapse, but activity has held up reasonably well in key areas such as oil production and less import-dependent manufacturing. What’s clear, though, is that the full effect …
The sharper fall in job openings in June signals that labour demand is now beginning to ease more markedly, but with the quits rate little changed and no signs of a pick-up in layoffs, labour market conditions remain extremely tight . (See Chart 1.) …
2nd August 2022
While encouraging for the property risk premium, better transparency across Europe is unlikely to provide much support for property yields given the deterioration in the economic and interest rate environment. This is even the case for Emerging European …
As the cost-of-living crisis bites consumers will be forced to cut back on discretionary spending, with the leisure sector set to suffer as a result. At the same time, operators are facing shortages of labour and rising costs. We have therefore cut our …
Consumer price inflation in Korea increased to a new 24-year high last month, but we think it has now peaked. With headwinds to the economy mounting, we believe that the central bank’s tightening cycle will come to a finish before the end of the year. …
The Reserve Bank of Australia revised up its inflation forecasts sharply when it lifted the cash rate by 50bp today and we expect it to hike rates more aggressively over coming months than most anticipate. However, we expect the Bank to start cutting …
July’s fall in the global manufacturing PMI supported other evidence that the industrial sector is in or close to recession and the forward-looking indicators point to further weakness to come. At least the weakness of demand has caused backlogs of work …
1st August 2022
The drop in the S&P Global EM manufacturing PMI last month suggests that a fading re-opening boost in China and weak global demand have caused industry to slow. And in parts of Eastern Europe, the surveys point to sharp falls in output. The one crumb of …
The composition of spending changes as consumers age, with a greater proportion allocated to healthcare, food and drink, and less to education, transport and recreation. The experience of countries that have already aged significantly, such as Japan, …
We continue to expect the yields of 10-year emerging market (EM) local currency (LC) sovereign bonds to rise over the rest of 2022. But we anticipate smaller rises than we did previously, given our downward revisions to our Treasury yield forecast, and …
Spillovers from the war in Ukraine have caused Egypt’s large current account deficit to widen this year and, with the country struggling to attract stable forms of external financing, officials will need to stick to their shift to a flexible exchange rate …
China’s PMIs fell in July, weighed down by soft export orders. However, we think that China’s economy troughed in H1 2022, and that a modest pick-up in H2 should give some support to commodities prices . China’s official and Caixin manufacturing PMIs …
The rapid headline 11.8% y/y GDP growth recorded in Saudi Arabia in Q2 masked underlying weakness in non-oil sectors of the economy. Even so, Saudi Arabia is a relative bright spot in the global economy and the data cement our long-held view that the …
The current surge in homes under construction has few parallels with the building boom that preceded the house price crash in the late 2000s. The build-up of homes under construction has largely been caused by delays in sourcing materials and labour, …
29th July 2022
We still expect a higher 10-year Treasury yield, lower S&P 500 and stronger US dollar over the remainder of the year, but have pared back our forecasts for the rise in yields and fall in equities. In particular, we now suspect the 10-year yield is …
After a strong start to the year, European investment weakened in Q2. And we expect only lacklustre activity over the second half of the year as rises in the cost of debt, tightening credit conditions and concerns about a recession in Europe weigh heavily …
Governor Tiff Macklem has voiced concern about the inflationary impact of the loonie, but we doubt that a modest fall would prevent the Bank of Canada from pausing its tightening before the Federal Reserve. At US$0.78, the loonie is far lower than the …
28th July 2022
We held an online Drop-In event yesterday to discuss our Q3 Global Economic Outlook and the forecasts within it (see an on-demand recording here ). This Update addresses several of the client questions that we did not have time to answer during the event. …
This Update was originally sent to clients as a Rapid Response immediately after the readout of the Politburo’s quarterly meeting on economic affairs was published by state media. The readout of the Politburo’s quarterly meeting on economic affairs has …
Household consumption has been weaker in Spain than in other big euro-zone economies, reflecting the slow rebound in tourism, more limited fiscal support and higher inflation. The latter is set to persist, while rising interest rates are a new headwind. …
The Fed’s decision to raise interest rates by a further 75bp to 2.25%-2.50% takes them close to their “neutral” level. With inflation set to fall and mounting signs of economic weakness, we suspect officials will be more cautious raising rates from here, …
27th July 2022
Real disposable household incomes will continue to be propped up until mid-2023 by fiscal transfers intended to offset the impact of virus disruption and rising inflation. But spending will continue to be held back as consumers remain cautious amid …
The decision by Gazprom to cut natural gas supplies to Europe to 20% of capacity has caused gas prices to surge and raised the risk of energy shortages during the winter. A full gas cut-off would result in self-inflicted pain for Russia. For the rest of …
Risks rising, but recession still far from inevitable While the deterioration in the survey data and renewed inversion of the Treasury yield curve imply that the risks are rising, our composite models suggest that the economy is still more likely than not …
Bank lending growth accelerated further in June, but lenders expect the demand for loans to slow sharply in the coming months, adding to the reasons to expect the economy to fall into recession. Meanwhile, banks in the periphery are tightening the Ts and …
The news today that Gazprom will further reduce its natural gas supply to Europe increases the likelihood of recessions in the euro-zone, UK and parts of Emerging Europe. It also supports our view that inflation pressures will be relatively persistent in …
26th July 2022
With global economic growth weakening and risk sentiment unlikely to rebound sustainably this year in our view, we think that EM currencies generally will remain under pressure over the next several months and that there are a handful of countries where …
Italy’s next government is unlikely to bring the country’s future in the euro-zone into doubt, in a repeat of the turmoil that we saw after the 2018 election. But it will probably run looser fiscal policy and find it more difficult to pass reforms. If it …
US equities have plunged this year, but the S&P 500’s valuation remains a long way from looking low on most measures, including Shiller’s CAPE. This is a key reason why we expect the returns from US equities over the next decade or so to fall well short …
25th July 2022
A rebound in tourism will cushion some of the blow to Spanish prime retail demand caused by falling real incomes this year. But once inflation eventually eases, we expect rent growth to outperform other European markets, supported by a rebound in consumer …
Our view that GDP growth will slow below potential next year assumes one of the sharpest falls in dwellings investment in Australia’s modern history. However, this Update explains why dwellings investment could hold up better than we’re anticipating. In …
Another month, another set of downbeat PMIs for advanced economies. The demand indicators weakened markedly in the US and the euro-zone for the second month in a row, crossing over into recessionary territory. The flipside of the softer demand is that …
22nd July 2022
The contrast between the strong performance of the apartment sector and the weak performance of offices in the last two years has made office-to-residential conversions more viable, but the numbers still don’t appear to stack up in most cities. In fact, …
Despite their recent rebound, we still think that “high-beta” developed market (DM) currencies will weaken further against the US dollar for the remainder of the year. DM currencies have risen against the greenback over the past week or so, reversing some …
The ECB’s 50bp rate hike today is likely to be the first move in a sustained interest rate hiking cycle which we think will bring the deposit rate to around 2% next year. We also think the Bank will at some point have to use its new asset purchase …
21st July 2022
Romania’s current account deficit is likely to rise to almost 9% of GDP this year. While a weaker currency would help to reduce this shortfall, structural reforms are needed to boost competitiveness in the long term. Until then, Romania’s deteriorating …
South Africa’s central bank upped the pace of tightening further with a 75bp hike, to 5.50%, as policymakers’ intensifying fears about inflation (and inflation expectations) trumped any concerns about the slow and bumpy economic recovery. The increasingly …
The rise in local currency bond yields across the emerging world poses a particular risk to fiscal positions in those EMs with large government financing needs and a short average debt maturity. Egypt, Pakistan, and Ghana stand out as those most …
While the valuation of the S&P 500 has fallen a long way, we don’t expect it to rebound any time soon; this is one reason we expect the index to continue to struggle over at least the remainder of this year. The backdrop for US corporate earnings looks …
Bank Indonesia (BI) left interest rates unchanged again today, and the dovish commentary from the press conference means we are pushing back the timing for the first hike from Q3 into Q4. With growth set to slow over the coming quarters and inflation to …
The Bank of Japan didn’t concede any ground to bond traders today but we still think there’s a good chance that it will widen the tolerance band around its 10-year yield target . The Bank kept its short-term policy rate at -0.1% and its 10-year yield …
It looks like Italy is heading for an early general election. While that won’t necessarily cause an economic and financial crisis, bond spreads are likely to widen regardless of what the ECB announces later today. After the Lega, Five Star Movement and …
The Q2 ECB bank lending survey showed a tightening in credit standards for commercial property lending in the first half of the year, with expectations for a further squeeze in H2. With the cost of debt also higher, more restrictive credit will weigh on …
20th July 2022
The latest revisions to our UK economic view indicate that a recession is now unavoidable. This will weigh on commercial property performance into next year, but the dip is expected to be fairly mild and as such we have made only modest downward revisions …
We’ve recently received several questions from clients on how the near-term outlook for India is shaping up. This Update summarises our big picture views for the next six months or so by providing answers to five key questions. Question #1: What is the …
