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Bank of Japan will hike rates at December meeting The Bank of Japan retained its hawkish outlook when it kept policy unchanged at today’s meeting and we still expect a rate hike to 0.5% at its next meeting in December. It came as no surprise that the Bank …
31st October 2024
This page has been updated with additional analysis since first publication. Australian consumer not out of the woods yet Although real retail sales saw a healthy pickup in Q3, there are reasons to suspect the data are overstating the momentum behind …
Consumption weakening yet again The September activity data were a mixed bag and consistent with our view that GDP growth slowed last quarter. Taking industrial production first, the 1.4% m/m rise was stronger than most had anticipated (Refinitiv …
This Budget is big, both in the way it defines the government’s plans and the money it raises and spends. The key point is that it loosens fiscal policy relative to previous plans and is therefore consistent with GDP growth perhaps being a bit stronger …
30th October 2024
Our more detailed and update analysis can be seen here . Despite large rise in taxes, Budget still boosts economy As the Budget loosens fiscal policy relative to previous plans, it is consistent with GDP growth perhaps being a bit stronger and interest …
US economy continues to outperform Despite earlier fears that the US economy was headed for recession, growth continued to out-perform other DMs. Third-quarter GDP growth came in at a solid 2.8% annualised, down only trivially from the 3.0% pace in the …
RBA still on course to cut rates in Q1 2025 Today’s CPI release suggests that underlying inflation will be within striking distance of the RBA’s 2-3% target range by year-end. That should pave the way for the Bank to begin easing policy at its meeting …
Annual house price growth continues to cool A slightly healthier 0.3% rise in house prices in August does not change the fact that the market is rapidly cooling amid weak demand and growing supply. Therefore, we stand by our recent decision to trim our …
29th October 2024
Budget has yet to affect households’ financial decisions Although consumer confidence has fallen ahead of the Budget, there is little evidence in September’s money and lending figures that Budget worries are having a big influence on households’ financial …
The NCREIF Q3 index posted a positive return for the first time in two years, with only offices recording a negative outturn. But with firmer evidence that poorly capitalized banks have been less likely to mark loans as non-performing, as well as …
28th October 2024
With the Conservatives currently on track to win a clear majority at the next federal election, which is due by October 2025 but could come much earlier, there is a high chance that the carbon tax will soon be scrapped. We do not think this would alter …
LDP election loss heralds era of political instability Following its poor showing in yesterday’s Lower House elections, the LDP will need to form an untested coalition to remain in power which will undermine its ability to push through major pieces of …
27th October 2024
Perhaps the most frequently asked question of the Capital Economics team is around fiscal risks and their implications for financial markets. There were more incoming this past week as Donald Trump looked to be doing better in the polls and more details …
25th October 2024
Trump-Musk Bromance: Economic implications Elon Musk has become one of Donald Trump’s biggest campaign supporters and donors in recent months, contributing $75 million to his America PAC and sharing the stage at events with the former President. Musk and …
Bank steps up the pace of loosening The Bank’s shift to a larger interest rate cut this week, which took the policy rate down to 3.75% (see here ), created some confusion among commentators. Some wondered why the Bank felt the need to act more …
Stage set for a softer fourth quarter While the fall in durable goods orders in September was mostly due to the volatile transportation components, the decline in underlying capital goods shipments will still drag on business equipment investment. The …
Our central forecast is that there won’t be a fiscally induced ‘crisis’ in the Treasury market. But there is clearly a risk of yields rising in response to higher term premia and more restrictive monetary policy than would otherwise be the case, if the US …
Why does the new rule allow more borrowing? The Chancellor, Rachel Reeves, has confirmed that in next week’s Budget she will shift from targeting the Public Sector Net Debt excluding the Bank of England (PSND Ex BoE) measure of government debt to another …
October surprise? The result of Japan’s Lower House election should be clear by early Monday morning. The new prime minister, Shigeru Ishiba, called Sunday’s vote to take advantage of a revival in the government’s popularity since he replaced Fumio …
Inflation concerns appear misplaced At an event organised by the Peterson Institute this week, RBNZ Governor Adrian Orr suggested that the Bank was likely to be more circumspect about loosening policy going forward. The Governor argued that it was …
The government’s new immigration plan implies that the population will decline by 0.2% in both 2025 and 2026, a huge shift from population growth of almost 3% over the past two years. That means GDP growth is likely to remain subdued in the next couple of …
24th October 2024
Overview – With goods inflation vanquished, the last leg of disinflation in advanced economies must come from falling services inflation. After plateauing at the start of the year, services inflation has fallen in recent months, and we think that this …
The latest flash PMIs suggest that GDP growth got off to a weak start in Q4 in most major advanced economies. The surveys also imply a slowdown in both services activity and employment growth in October, meaning that the ECB and Bank of England may up the …
Pick-up in sales to be short-lived The increase in new home sales in September was probably supported by the fall in mortgage rates last month. Rates have rebounded since then, however, which lends support to our view that new home sales will not rise …
Renewed jitters in bond markets in part reflect a nagging sense that inflation isn’t whipped. Headline rates have come back to target, but central banks in many economies are faced with still-sticky core inflation readings that investors worry will force …
Strong US labour market should have soothed hard landing concerns Domestic data remain strong, but Bank has signalled that it won’t hike in October Bank will wait until December to hike again, but won’t tighten any further in 2025 The Bank of Japan …
This page has been updated with additional analysis since first publication. Budget concerns trigger slowdown in activity The fall in October’s composite flash PMI to an 11-month low suggests that real GDP growth, after what is shaping up to be a 0.2% q/q …
Flash PMI economic momentum is fizzling out The sharp fall in the composite PMI to a 2-year low supports our view that the strong rebound in activity that started in Q2 will be more muted across the second half of the year. Today’s flash estimate showed …
We discussed the Bank’s policy decision in a Drop-In. You can view the recording here . The weak economic backdrop means we still see a strong case for the Bank of Canada to follow its larger 50bp cut today, which took the policy rate to 3.75%, with …
23rd October 2024
Stagnant existing home sales should rally soon The 1% m/m fall in seasonally adjusted existing home sales in September seems underwhelming given last month’s drop in mortgage rates, but the rise in mortgage applications in September points to a recovery …
50bp cut likely to be followed by another The weak economic backdrop means there is a strong case for the Bank of Canada to follow its larger 50bp cut today, which took the policy rate to 3.75%, with another 50bp move at the next meeting in December. Our …
Alternatives have grown in importance in portfolios in recent years and structural drivers including AI, an aging population and poor housing affordability point to further growth in occupier demand for these assets. With investors increasingly looking …
22nd October 2024
With two weeks to go until election day, Donald Trump has opened a meaningful lead over Kamala Harris in betting markets, although the latest polling suggests the race remains too close to call. To recap, we suspect Trump’s proposed curbs on immigration …
Overview – A fall in mortgage rates from 4.5% now to around 3.6% in late 2025 may mean that, despite increases in taxes in the Budget on 30 th October, house prices rise by 5.0% in 2025 rather than the consensus forecast of 2.5-3.0%. By allowing the …
This page has been updated with additional analysis since first publication. Borrowing disappoints but won’t prevent the Chancellor from raising investment While it is too late for September’s disappointing public finances figures to influence the amount …
Upward revisions by the ULI consensus mean our forecasts remain more downbeat over the next couple of years. However, this is largely down to our weaker view on industrial, while our forecasts for the other sectors are more optimistic, particularly for …
21st October 2024
The September release of US non-farm payrolls was just the start of a run of strong employment releases in advanced economies this month, reigniting fears about pay growth and inflation. However, when putting a few quirks to one side and judging a range …
Although corporate credit spreads in the US and the UK have nearly reached multi-decade lows, we think they will remain near those levels over the next year or so. And we don’t see spreads in the euro-zone widening either, despite dim economic prospects. …
18th October 2024
The data this week confirmed that retail sales rose strongly in September and industrial production suffered only modestly from hurricane and strike disruption, with our third-quarter GDP growth estimate still at 3.5% annualised. That said, with the full …
Until now, all the focus has been on the Chancellor’s £22bn fiscal “black hole”. This week a different, bigger, number hit the headlines: a £40bn “funding gap”. Why the change? A crucial distinction is the time period they relate to. The £22bn “black …
Multi-family weakness offsets gain in single-family starts The small fall in housing starts in September was entirely due to the multi-family segment, whereas single-family starts rose to a five-month high. While starts will probably weaken this month due …
Donald Trump says ‘tariff’ is “the most beautiful word in the dictionary”. That’s up for debate – but what’s less arguable is that raising taxes on imports as much as the Republican presidential candidate is threatening would be bad trade policy, …
This page has been updated with additional analysis since first publication. Households still increasing spending despite fears about tax rises September’s 0.3% m/m rise in retail sales volumes was stronger than expected (consensus forecast -0.3% m/m, CE …
Government to increase supplementary spending Prime Minister Ishiba said this week that the customary supplementary budget due before the end of this year will be larger than last year’s ¥13tn (2.2% of GDP). This is probably motivated by the upcoming …
Firms will take higher labour costs on the chin With the Australian labour market remaining resilient as ever, financial markets have come around to our view that the Reserve Bank of Australia won’t cut interest rates before Q1 2025. That’s a notable …
Underlying inflation will remain around 2% for now While the resumption of electricity subsidies resulted in a plunge in headline inflation in September, inflation excluding fresh food and energy rose to a three-month high and should remain around 2% over …
Recessions fears continue to go unfounded, with the labour market still in good health after the strong September employment report. Prospects for October look weaker due to recent temporary disruptions but, with core inflation pressures heating up a …
17th October 2024
Sales strong despite late-month hurricane disruption The strong 0.7% m/m rise in control group retail sales in September suggests that consumption growth strengthened to more than 3% annualised last quarter. That said, timelier data show a big drop in …
This page has been updated with additional analysis since first publication. RBA to focus on inflation fight as labour market remains robust With the labour market running red hot, the Reserve Bank of Australia won’t cut rates before the first half of …
