Inflation across Central and Eastern Europe (CEE) has continued to surge and now sits at its highest level in around 20 years. This can be partly attributed to global factors, such as rising energy prices and supply chain disruptions, which are eventually …
24th November 2021
The sharp tightening of financial conditions in Latin America and Emerging Europe will add to headwinds facing both regions and feeds into our view that recoveries there are entering a slower phase. Financial conditions in Asia have tightened too, albeit …
While the RBNZ only hiked rates by 25bps at today’s meeting, it is set to continue lifting rates next year. However, we think a slowdown in the economy will end the Bank’s hiking cycle with the OCR at 2.0%. Today’s 25bp hike in the OCR was correctly …
High household debt will magnify the impact of interest rate hikes on the housing market and we now expect prices across the eight capital cities to fall by 5% from H2 2023. The upshot is that the RBA is unlikely to hike rates as sharply as the financial …
The Flash PMIs for November showed that although there are tentative signs that supply shortages are easing slightly, labour and product shortages are still weighing on recoveries in advanced economies. At the same time, the surveys point to record gains …
23rd November 2021
Data show a vast divergence in performance across the industrial sector over the last year. While some of the strength is consistent with that in the apartment and office sectors, driven by migration to the South, others have been supported by …
The Central Bank of Nigeria kept its benchmark rate on hold at 11.50% today, but the statement signalled that monetary policy normalisation is now on the horizon. While we don’t expect interest rates to be raised imminently, we have pencilled in 200bp of …
Germany’s worsening Covid situation means much of the country could be subject to much tighter restrictions soon, potentially knocking around 0.25%-pts off euro-zone Q4 GDP. Even if other countries impose less draconian rules, consumer caution might mean …
With the Turkish lira down by 9% so far today and 20% over the past week, the currency is now firmly in crisis territory. Higher inflation and tighter domestic financial conditions are likely to sap Turkey’s recovery. But given the small trade and …
European natural gas prices were in the news again last week, soaring by 18%. Given stocks are still low and there are few signs of extra flows from Russia, we think that prices will remain high in the near term . The European natural gas market has …
The Turkish lira has plunged this morning after President Erdogan signalled yesterday that policymakers have no appetite to respond to the currency’s recent falls by hiking interest rates. Further falls in the lira are likely to lie in store and we think …
The Bank of Israel (BoI) left its policy rate on hold at 0.10% as expected at its meeting today, confirmed that it will end its bond purchase programme next month and emphasised that it will continue to intervene in the FX market for as long as necessary. …
22nd November 2021
Turkey’s banks are generally in a good position to cope with sharp falls in the lira: they have large capital buffers to deal with a rise in non-performing loans, off-balance sheet instruments to mitigate the threat from currency mismatches on their …
Taiwan export orders dropped back in October, but the big picture is that they are down only slightly over the past few months and remain at an elevated level. Looking ahead, we expect demand to weaken, but a backlog of unmet orders means shortages will …
Media reports that suggest that the Bank of Japan is losing control of short-term interest rates due to its “Special Deposit Facility” encouraging banks to park reserves at the BoJ are wide of the mark. The scheme does not threaten the viability of the …
The Loan Prime Rate (LPR) remained unchanged for the 19th consecutive month today. But officials are already easing policy in other ways, such as by relaxing constraints on mortgage lending. The PBOC has also pushed down bank funding costs via recent …
This Update answers several questions on the Biden administration’s latest proposals for US corporate taxes as well as the global tax deal recently agreed among the world’s major economies. The proposed changes are probably, at the margin, a reason to …
19th November 2021
The Build Back Better Act, which was passed by the House today, would provide only a small boost to economic growth next year. With the economy already running up against capacity constraints and any supply-side benefits of the plan likely to take time to …
Google mobility data show a much fuller recovery in visitors returning to retail and recreation than to the workplace. This supports our view that structural changes will weigh on the office sector more than retail over the next few years, helping to make …
The slump in auto production related to supply chain disruptions has dragged down the pace of the global recovery this year. And while there have been some indications that supply of auto parts is starting to pick up again, meaning there is scope for an …
Pakistan’s central bank (SBP) today raised interest rates by an aggressive 150bp and with inflation set to remain above target and the currency likely to come under further downward pressure, further hikes are likely over the coming months. While the …
New home sales have dropped by a fifth since March, a similar-sized slump to those seen during the previous two housing downturns. With policy now turning more supportive, high-frequency data suggest that sales are bottoming out and a cyclical rebound …
Several euro-zone governments have tightened coronavirus rules lately and more measures are on the cards, including in Germany. On the whole, these are set to be less severe than they were earlier this year and have less economic impact. But “lockdowns” …
18th November 2021
The fresh falls in the Turkish lira following the CBRT’s interest rate cut today have left Turkey firmly in crisis territory and echoes of previous “sudden stops” during major EM currency crises in the past are growing louder. Without an aggressive policy …
The frontrunners in Sunday’s presidential election in Chile, Gabriel Boric and José Antonio Kast, hold different views on the desired size of the state in the economy, but both advocate relatively loose fiscal policy. This would help to support economic …
The latest crisis engulfing Turkey is likely to make it harder for the country to roll over its external debts, with the banking sector particularly vulnerable. If Turkey’s crisis worsens, it may cause wobbles in a few EM currencies, but there are reasons …
Most banking sectors in the region (with the notable exception of Lebanon) have, so far, come through the COVID-19 crisis in relatively good shape. But with support programmes now being withdrawn, there is a risk that vulnerabilities in Tunisia, Qatar, …
The South African Reserve Bank fired the starting gun on monetary policy normalisation with a 25bp hike in the repo rate, to 3.75%, today amidst growing concerns about inflation risks. But the statement lends support to our view that interest rates will …
The announcement that the Fed will start to taper its purchases of MBS this month is not set to widen mortgage spreads. The cut in demand will be gradual and offset by a moderation in the supply of MBS as home sales decline. With the cost of the …
Price inflation in Canada and the US followed a similar trend in the 2010s, but we think the pandemic marked a turning point, and expect the former to remain lower than the latter. The October CPI data (see here ) confirmed that prices have increased by …
The sharp falls in the lira over the past few days clearly weren’t enough for Turkey’s central bank to stand up to President Erdogan as it pushed ahead with a 100bp cut (to 15.00%) to its one-week repo rate. While the CBRT did signal that the easing cycle …
Bank Indonesia (BI) left interest rates unchanged at 3.5% today and appeared to signal that policy rates would remain unchanged for some time yet. A large output gap and weak inflation mean the central bank is in no hurry to follow other EM central banks …
The central bank in the Philippines (BSP) left its main policy rate on hold at 2.00% today to support the economic recovery, and with GDP still well below its pre-pandemic level, rates are set to remain low for a long time to come. The decision came as no …
We now think that, rather than remaining broadly stable, the spreads of euro-zone “peripheral” bonds will widen somewhat over the next two years as the ECB gradually normalises monetary policy. That said, we still expect spreads to remain low by …
17th November 2021
Fiscal balances have generally improved across Latin America this year (barring Chile and Colombia) but we think that governments in most major economies will struggle to implement the substantial austerity needed to stabilise public debt-to-GDP ratios. …
There has been no let up for the Turkish lira today and all eyes are turning to the central bank’s interest rate decision tomorrow. Policymakers’ increased tolerance to falls in the lira as well as pressure from President Erdogan mean that an interest …
Rising virus numbers have caused containment measures to be reimposed in Emerging Europe and now seem to be harming consumer activity in the euro-zone. There is a strong risk of further restrictions over the winter in several economies, but in most cases …
Net capital outflows from EMs have persisted in recent weeks and, looking ahead, a further rise in US Treasury yields could lead to larger outflows over the coming months. The good news is that – Turkey aside – vulnerabilities to outflows in most major …
16th November 2021
COP26 has progressed efforts to fight climate change, but there is still a significant gap between pledges and actual policies. Unless action ramps up this decade, countries may face a choice between accepting the costs of greater global warming or a …
Investors were initially disappointed following the decision by Hungary’s central bank (MNB) to raise its base rate by only 30bp (to 2.10%) today, but the hawkish post-meeting communications and a pledge to step up the pace of tightening by using other …
The Turkish lira has remained under significant pressure at the start of this week and there is a growing risk that the central bank’s continued obedience to pressure from President Erdogan for interest rate cuts results in sharp and disorderly falls in …
The current bout of high inflation will put much less direct upward pressure on negotiated wages in the euro-zone than in previous such episodes. This is because far fewer agreements now contain inflation-linked clauses and those which do are typically …
Although the climate deal struck at COP26 appears to have fallen short on many counts, it does at least reaffirm our view that demand for traditional energy commodities will struggle in the long run . Following two weeks of negotiations, the ‘Glasgow …
Copper prices have soared since mid-2020 as demand raced ahead of supply. However, a strong supply response is now underway which, in tandem with cooling copper demand, will weigh on prices into 2022. The cash price of LME copper surged close to $11,300 …
15th November 2021
Low mortgage rates, strong earnings growth, plenty of cash savings and a surge in home equity have pushed the early mortgage delinquency rate to a record low this year. Most of those factors will continue to support borrowers over the next couple of …
By next year, Brazil’s public sector interest payments could be almost twice as large (at ~8% of GDP) as they were in 2020, making the challenge of stabilising the public debt-to-GDP ratio all the more difficult. A lot of the focus of the implications of …
The IPF Consensus forecasts for euro-zone prime office rental growth in 2021 have been revised up, consistent with the more positive recent data. However, expectations were revised down slightly for the next couple of years. Even so, we still have a more …
The September Job Opening and Labour Turnover survey shows labour market conditions are far tighter than the 4.6% unemployment rate suggests, and points to continued rapid wage growth. With productivity stagnant, that will add to mounting cyclical price …
12th November 2021
Even though the S&P 500 has risen by almost another 25% or so this year, we are still not persuaded that the US stock market is in a bubble that is about to burst. Admittedly, the case for the existence of a bubble may have strengthened since around the …
In contrast with our expectations for sovereign bond yields to rise around the rest of the world, we think that the 10-year Chinese government bond (CGB) yield will decline over the next couple of years as the country’s central bank loosens monetary …
