The National Bank of Poland (NBP) unexpectedly delivered its largest interest rate hike in 22 years today (100bp, to 4.50%) to get on top of the deteriorating inflation outlook and we think there’s little argument against further hikes to come. We now …
6th April 2022
The resilience of the US stock market over the past month or so is hard to square with recent inversions in parts of the US Treasury yield curve. While we do not think that these inversions necessarily presage a recession, we nonetheless suspect that …
While yield curves have inverted in a number of emerging markets (and look likely to do so in several others in the coming months), they don’t have a good track record in predicting recessions in the emerging world. In most EMs, we think that growth will …
Political developments and spillovers from the war in Ukraine have compounded concerns over Tunisia’s public finances and cemented our view that the government will default sooner rather than later. Tunisia’s President Saied has taken further steps in …
The yen isn’t obviously undervalued so it isn’t clear whether attempts to strengthen it would work. Most importantly, the Bank of Japan remains convinced that a weaker yen is beneficial for Japan’s economy. The yen has weakened by around 7% against the …
So far, the spill overs from the COVID outbreak in China to the rest of Asia look to have been relatively minor. But the possibility of major disruption to supply chains remains a large and growing risk. The China Caixin Services PMI was released today …
Mexican President López Obrador is likely to remain in power after a recall referendum on his position this Sunday, which may embolden him to double down on his interventionist agenda. While a radical shift in policymaking is unlikely, the prospect of …
5th April 2022
This tightening cycle looks set to be much more synchronised across developed market economies than the last one, which we think creates more scope for rises in bond yields across countries but could limit any further flattening of the US yield curve. …
The chances of right-wing nationalist Marine Le Pen winning the French presidency later this month appear to have risen sharply over the past couple of weeks. A victory for Le Pen would almost certainly worsen the public finances and place a question mark …
While today’s policy statement wasn’t outright hawkish, the RBA’s dovishness is waning and we’re confident in our forecast that the Bank will start to lift interest rates in June . As widely anticipated, the Bank kept policy settings unchanged today, but …
Higher oil prices will boost government revenues in the major EM energy producers, but many other EMs will face a fiscal cost via fuel subsidy programmes. While these costs are likely to be small in most cases, there are a few countries of concern, …
4th April 2022
With cyclical pandemic effects fading, the backdrop has improved for Dutch retail. However, having been hardest hit in 2020-21, the structural legacy of COVID-19 and higher economic barriers to conversion mean that the outlook is also weaker for retail in …
A constitutional crisis in Pakistan threatens to scupper its deal with the IMF, which would throw its already-precarious external situation into very dangerous territory. Meanwhile, political meltdown in Sri Lanka, where an external crisis is already well …
Despite strong house price growth across the country over the past two years, including in regions that had lagged behind, valuations are most stretched in the usual places. As a result, house prices are still most vulnerable to rising interest rates in …
While we suspect the recent recovery in the MSCI China Index may have further to run, we don’t think the stage is set for a big rally either . After falling sharply at the beginning of the year, China’s stock market appears to have turned a corner in …
1st April 2022
The broad-based fall in March’s manufacturing PMIs shows that the war in Ukraine is starting to take its toll on EM industry, particularly in Emerging Europe, while China’s lockdown is hitting industry there. The surveys provided signs that external …
The latest manufacturing PMIs suggested that the Ukraine war and Chinese lockdowns have so far had a fairly modest impact on output in the rest of world. However, they showed that firms expect the main hit to come in the weeks ahead. And stretched supply …
Even though the ejection of Russia from the MSCI EM EMEA Index has changed its country and sector composition, we doubt that this will meaningfully change how it tends to behave. Our forecasts for lower commodity prices and mediocre global growth suggest …
The rental growth premium enjoyed by Central London shops has disappeared in the pandemic. And we don’t expect it to reopen, as lower footfall in the capital, the slow recovery in tourist arrivals and higher vacancy rates weigh on rental growth. All …
The war in Ukraine and high energy prices will keep industrial metal prices elevated for now. But once supply fears ease, the weakness in China’s demand will be exposed and will weigh on prices . Admittedly, all the current focus is on metals supply, but …
The Czech National Bank (CNB) slowed the pace of its tightening cycle for the third consecutive month today with a 50bp rate hike to 5.00%, but hawkish communications after the meeting suggest that the CNB is not finished yet. We now expect a 50bp hike at …
31st March 2022
Fidesz is looking the most likely to retain power in Hungary’s election this weekend, which will pave the way for four more years of tensions with the EU over the rule of law and raise the likelihood that EU fund inflows are withheld. From a macro …
Weakening GDP growth in the euro-zone’s trading partners – and a slump in Russia’s economy – mean that the currency union’s exports look set to grow very slowly this year. The early evidence shows that the war in Ukraine has led to a drop in export …
The strength of Prague industrial performance last year exceeded expectations but also left valuations looking highly stretched. While there are risks stemming from trade links with Russia, we think the expectation of solid rental growth will continue to …
Commodity prices are as volatile as they’ve ever been. We don’t think volatility will ease until the war in Ukraine ends, because only then will we know the true extent of the Russia-related supply shock . Commodity prices are naturally volatile for many …
One issue the IMF seems to be glossing over in its latest deal with Argentina (the 22 nd in the country’s history) is that the currency looks overvalued. But the adjustment needed to improve the external position and foster stronger growth will aggravate …
30th March 2022
The Monetary Policy Report released by Chile’s central bank today, following on from its 150bp rate increase to 7.00%, suggests that its tightening cycle is winding down to a close. However, we think that high inflation alongside Chile’s growing external …
With the Ukraine war and pandemic-related prices pressures still much stronger than anticipated, we think the ECB will not want to wait much longer before beginning to raise interest rates. Our new forecast is for three 25bp rate hikes this year and five …
While buying a home is likely to remain a better option than renting, despite rising mortgage rates, the decision will become more finely balanced. That will mean some prospective first-time buyers rent for a bit longer, helping to cool house price growth …
The tightening of global financial conditions since the onset of the Fed’s hiking cycle and the war in Ukraine has caused sovereign dollar bond spreads to widen significantly in several frontier markets, with default risks in Sri Lanka and Tunisia …
The Bank of Thailand (BoT) left interest rates unchanged at its meeting today and suggested that it would continue to look through a temporary rise in inflation to support the economic recovery. We are sticking with our view that the central bank will …
The latest data from Nigeria suggest that the economy strengthened at the start of this year. But there are growing signs that the central bank’s draconian foreign exchange policies are leading to shortages of goods that are fuelling inflation and likely …
The government looks set to use its 2022 budget next week to outline a further increase in spending. While this will be modest in the context of the stimulus provided during the pandemic, it comes at a time when the economy is already operating at …
29th March 2022
The main long-run economic impact of the Ukrainian refugee crisis will be to boost the workforce of countries where the migrants settle, partially offsetting the unfavourable demographics that many of these areas face. According to the UN, some 10m …
There are already clear signs of spillovers in Central and Eastern Europe (CEE) from the war in Ukraine and we think that the overall hit to GDP growth in the region this year will amount to 1.0-1.5%-pts. Our forecasts for growth are generally below those …
With the government facing defeat in May’s election, today’s Budget continued the course of loose fiscal policy that began at the start of the pandemic. As the unemployment rate is set to fall to a 50-year low, this only adds to the pressure on the RBA to …
The experience of the 1970s suggests that the ongoing war in Ukraine and its effects on commodity prices will reshape commodity markets for years to come. Most immediately, elevated prices are likely to lead to some degree of demand destruction. And …
It hasn’t failed yet but the Bank of Japan’s need to return repeatedly this week to defend the ceiling of its yield target suggests that cracks are appearing in the structure of Yield Curve Control. If maintaining it requires large-scale purchases, the …
While we think that the war in Ukraine and Fed tightening will weigh on US corporate earnings, we still expect those earnings to grow in the next two years or so. This underpins our view that US equities will make some further small gains over that time . …
28th March 2022
We expect European steel prices to remain elevated this year given sharply higher production costs and disruption caused by lower imports from Russia and Ukraine. That said, prices should ease back from current highs on the back of subdued demand and some …
With euro-zone inflation set to average around 6% this year, we expect aggregate real household incomes to fall by about 1.5%. The impact on consumption will be cushioned to some extent by fiscal support and, to a greater extent, by a decline in the …
We think that the poor performance of US REITs in 2022 so far – despite rising concerns about inflation – adds to the evidence that REITs are not necessarily a better inflation hedge than ordinary equities. Reflecting a post-lockdown boom in underlying …
25th March 2022
The latest data from the industrial sector were predictably upbeat with strong take-up and dwindling supply driving rapid rental growth. There were also signs of important shifts across UK markets that we think may be significant enough to re-cast our …
Yesterday’s unanimous vote by Mexico’s central bank to raise the policy rate by 50bp, to 6.50%, came as no surprise since it had already been revealed by President López Obrador (Amlo) earlier in the day. While we wouldn’t go as far as to say the central …
We doubt Treasuries would underperform US equities as emphatically as they have in recent weeks if oil prices and inflation surged a lot more. Indeed, they could conceivably outperform – as they did at times in the 1970s – if that fostered expectations of …
Yesterday’s easing of virus restrictions in Singapore exceeded what we had expected, and now means the risks to our above-consensus growth forecast of 4.0% this year are to the upside. The measures are also likely to add to inflationary pressures, further …
The Flash PMIs for March suggest that there has been little impact on growth in advanced economies from the war in Ukraine so far, but there are some warning signs for the future. Supply shortages are building again in Europe, price pressures have …
24th March 2022
The upside inflation risks created by the war in Ukraine and the solid performance of South Africa’s economy prompted the Reserve Bank to push ahead with its tightening cycle today, raising the repo rate by 25bp to 4.25%. We maintain our view that rates …
The reinvestment of oil revenues into US markets probably helped avert a rout in Treasuries during the mid-2000s hiking cycle, but even with oil prices on the rise again we don’t expect so-called “petrodollars” to halt the current slide in Treasuries. …
Ida Wolden Bache kicked off her time in charge at the Norges Bank with a rate hike and prepared the ground for even more aggressive tightening. We now expect 175bps of hikes by end-2023, to 2.50%, and there is good chance that the Bank front-loads the …
