Last Friday, we warned in our Data Response to May’s CPI report that the unexpected rise in headline inflation opened the door to a 75bp rate hike by the Fed this Wednesday. Media reports this afternoon suggest the Fed will indeed hike by 75bp at this …
14th June 2022
The weakening in the yen to a 24-year low and a crack in the Bank of Japan’s ceiling on 10-year yields today is putting significant pressure on policymakers to respond. FX intervention is a possibility, but we doubt it would be effective. We suspect the …
13th June 2022
Chile is likely to run a current account deficit of 7% of GDP this year, the widest since 1985. Worryingly, this deficit is being increasingly funded by volatile portfolio inflows, making the economy (and currency) particularly vulnerable to swings in …
Housing markets are now showing signs of starting to weaken. While the consensus is that house price inflation will merely slow, we expect outright prices to fall in several of the most vulnerable markets. We have highlighted before which housing markets …
Greece has already made a more complete recovery from the pandemic than most of its peers and the short-term outlook still looks relatively good. The country is less exposed to Russia-Ukraine risks than many, and surging tourism revenues should lift GDP …
The Prime Minister last week announced a trio of policies aimed at reversing the decline in home ownership since the financial crisis. We doubt the schemes will make a big difference, although more consistent availability of low deposit mortgages could …
We are raising our forecasts for euro-zone 10-year government bond yields and “peripheral” spreads to reflect the ECB’s further hawkish shift as well as its apparent unwillingness to commit to a strong backstop for peripheral bond markets . The sell-off …
10th June 2022
Tighter ECB policy could cause house prices in the euro-zone to fall, but we think that a housing crash will be avoided even in the Netherlands where the risks are largest. Against the backdrop of ultra-loose monetary policy, supportive fiscal policy, and …
The Russian central bank (CBR) delivered a 150bp interest rate cut to 9.50% today as its focus continued to shift away from inflation risks towards supporting the economy. We think further reductions are likely to be more gradual, with rates ending this …
After months of aggressive interest rate hikes, the end of tightening cycles in parts of Emerging Europe and Latin America is creeping closer. But inflation concerns mean that policy rates are likely to remain high for a long time yet. Meanwhile, …
Despite the sharp fall in the US stock market this year so far, US equities still appear much more highly valued than their peers in the rest of the world. While that might not tell us much about the outlook for relative returns in the near term, …
While the spillovers from the renminbi’s depreciation against the US dollar over the past two months have in some ways been similar to previous periods of renminbi weakness, the impact on other emerging market (EM) currencies has differed somewhat from …
9th June 2022
Softer demand for steel in Europe has dragged prices lower recently, despite production in the region being constrained by high production costs. We expect prices to fall a little further to €900 per tonne by end-year from around €950 currently . The war …
The latest polls for this month’s legislative elections in France raise the possibility that Macron’s party and allies may not win a majority. But even so, support from the centre-right might avoid a lame-duck presidency, allowing Macron to push through …
Today’s policy statement and press conference sets the stage for the ECB to raise interest rates by 75bp by September and we expect that to be followed by two more hikes this year. The Bank’s failure to provide any more details about its backstop plans …
While we doubt it will be the main driver of the US dollar, the ongoing reduction in the size of the Fed’s balance sheet (i.e., “quantitative tightening”, or “QT”) adds to our conviction that the greenback will continue to appreciate over the rest of the …
Cancelling all of the Trump tariffs on China would give a smaller direct boost to China’s export sector than many might think. More important would be the signal a unilateral rollback would give that the US wanted a reset in relations. This would lift …
Commodity import volumes revived a little in May, perhaps as virus-related restrictions started to ease. Although demand should pick up in tandem with activity as major cities re-open, we think that high prices and slower export growth will mean that …
The latest London Crane Survey showed office space under construction rose marginally, but will increase further as supply rises. This supports our view that increased supply over the next two years will keep vacancy rates high. As a result, we expect …
The guidance in the Monetary Policy Report released by Chile’s central bank today, following on from its 75bp rate hike to 9.00% yesterday, suggests that the tightening cycle has a little further to run. We think that double digit inflation alongside …
8th June 2022
The perception of Amazon as a bellwether for the industrial sector made the announcement that it had over-expanded in the last two years a potentially worrying one. But, the fact that Amazon is only cutting back on a small proportion of its space, and …
The Turkish lira has continued to slide and the current backdrop is eerily similar to that which preceded previous currency crises. Sharp and disorderly falls in the lira over the coming weeks are now a real risk. The lira slipped beyond 17/$ this morning …
The view that policy support is best directed towards investment rather than consumption is deeply rooted in China. A few token consumer voucher schemes aside, this doesn’t seem to be changing. In the package of 33 support measures announced by the State …
The Bank of Thailand left interest rates unchanged today, but hawkish comments from the central bank suggest that rates will be raised sooner than we had previously expected. Today’s decision was a close call, with the monetary policy committee voting 4-3 …
The RBI hiked the repo rate by 50bps to 4.90% today, as we had anticipated, and made substantial upward revisions to its near-term inflation forecasts. Further tightening will follow over the coming months. But we also expect policymakers to step up …
While we forecast that the US economy will merely slow rather than enter a recession, we still expect twin sell-offs in stock and bond markets to resume, with value stocks and defensive sectors outperforming. Our US Economics Service is the place to go …
With the RBA set to hike the cash rate to 3% by early-2023, we now expect house prices to fall by 15% from their April peak. While the economy has considerable momentum from reopening in the near-term, plunging house prices will weigh on consumer spending …
The Bank of Canada’s recent communications suggest that it will be unfazed by the second consecutive double-digit drop in home sales in May. This raises the chance of the Bank enacting a larger interest rate hike at its meeting in July and leaves us …
7th June 2022
We forecast the SNB to largely shadow ECB rate hikes over the next 18 months or so, albeit allowing the interest rate differential with the euro-zone to widen from 25bps at present to 50bps by end-2022. But the balance of risks is skewed towards the Bank …
Headline CPI inflation in India is likely to have dropped in May, primarily due to base effects. But beyond May, we expect inflation to resume rising, reaching over 8% by August. The RBI is likely to respond by frontloading policy tightening in the coming …
A falling fertility rate and declining employment among retirement age workers pose downside risks to our long-term forecasts for Japan’s labour force and GDP growth. However, with the female participation rate still climbing from record highs and job …
The 50bp hike in the cash rate today is consistent with our view that interest rates will peak at higher levels than most anticipate and we’re expecting additional 50bp hikes in July and August . That 50bp hike was anticipated by just a handful of …
This Rapid Response was sent to clients immediately after the results of the vote of confidence in Boris Johnson at 9.00pm BST on 6 th June 2022. After winning tonight’s confidence vote, the Prime Minister, Boris Johnson, may double down on Brexit and …
6th June 2022
Unfavourable shifts in commodity prices, the effects of drought and a slow rebound in the tourism sector will hold back Tanzania’s economy over the next couple of years. But while the near-term outlook is weaker than most think, President Hassan’s …
The solid 1.0% q/q rise in Brazil’s GDP in Q1, alongside the strength of the recent survey data, reinforce our view that the economy will fare better than most expect this year. However, we still think that Brazil’s growth prospects remain weaker than …
Egypt’s government is set to kick off its latest privatisation drive later this year, but its track record provides little hope that it will meet targets. The authorities are likely to retain a high degree of control over the economy, holding back Egypt’s …
We doubt that the low saving rate represents a serious threat to the economy. But with slower employment growth likely to limit gains in income later this year, it adds to our sense that the recent strength of consumption growth won’t last much longer. …
2nd June 2022
The latest manufacturing PMIs suggest that industrial activity weakened a touch in May. But while the forward-looking components of the surveys imply that weaker demand will weigh on output in the months ahead, there were some further signs that …
1st June 2022
While the headline job openings and quits rates remain close to record levels, below the surface there are clear signs that labour shortages are easing in the hardest-hit sectors. That provides some support for the idea that a recession is not necessary …
The S&P Global EM Manufacturing PMI for May suggests that the easing of virus-related disruptions in China supported a small rebound in EM manufacturing last month, but the sector remains very weak. And the effects of the war in Ukraine are taking an …
By increasing the demand for accommodation and boosting rents, the shift to remote work will have put some upward pressure on house prices. But while rents have seen an above-trend increase since the end of 2019, that would only have boosted house prices …
The Bank of Canada hiked its policy rate by another 50bp, to 1.5%, today and, after warning that "the risk of elevated inflation becoming entrenched has risen", closed the accompanying statement with an ominous hint that a 75bp hike was now on the table …
Despite a rise in May, China’s PMIs still point to weak Chinese demand, which will continue to weigh on industrial metals prices. However, the war in Ukraine will remain the bigger driver of energy prices. China’s official and Caixin manufacturing PMIs …
While it has rebounded over the past couple of weeks, we expect the renminbi to resume its fall against the US dollar as China’s economy underwhelms , interest rate differentials continue to shift against the renminbi, and the last two years’ strength of …
The EU’s sixth round of sanctions on Russia marks yet another defining moment in the West’s detachment from Russia’s energy trade. The sanctions were widely telegraphed in advance, though, so for now we still forecast that crude oil prices will remain …
31st May 2022
Annual money growth is slowing sharply and, given rapidly rising interest rates, wealth losses and QT, that slowdown has a lot further to run. (See Chart 1.) The growth rate of bank loans is accelerating, however, suggesting that fears of an economic …
It remains a mixed picture when it comes to how well the labour force is recovering in the wake of the pandemic. The recent improvement in some countries supports our view that much of the pandemic-related drop may be reversed eventually. But this could …
Both our view and that of the IPF Consensus is that prime office rental growth will slow as hybrid working shifts take their toll. However, we also think it is likely that a quality gap will emerge, though the evidence of this is not conclusive so far. …
The rapid improvement in the public finances means that the government can provide financial support to households struggling with high energy bills without raising taxes. But if it did decide that more revenue is needed, a windfall tax on mining profits …
House prices in New Zealand are tumbling and all signs point to a further deterioration in the months ahead. On that basis, we are revising up our forecast for the peak to trough decline in prices from 10% to 20%. That’s why we expect the RBNZ’s hiking …
30th May 2022
