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March rate cut is data dependent Rate expectations have rebounded Officials need to see more evidence that disinflation will be sustained We think that evidence is coming, paving way for a March rate cut At next week’s FOMC meeting, we don’t expect the …
24th January 2024
Bank drops its hiking bias The Bank of Canada’s decision to drop its tightening bias today is the first step toward interest rate cuts. We continue to think that the Bank’s forecasts for the economy are too optimistic, and that inflation will slow faster …
This page has been updated with additional analysis since first publication. Lingering evidence of sticky services inflation may continue to concern the BoE The small rise in the composite activity PMI, from 52.1 in December to 52.5 in January, suggests …
Property yields rose further in Q3, but with risk-free rates now falling back, we think they will stabilise in the first quarter of 2024. But given historically narrow yield spreads, we doubt we will see much yield compression ahead either. As the economy …
This page has been updated with additional analysis since first publication. Positive signs for this quarter The composite PMI rose for the second consecutive month in January, driven by rises in both manufacturing and services components. And with the …
This page has been updated with additional analysis since first publication. Export growth will be sluggish this year The trade deficit widened in December as import values rose more strongly than export values. But the weakness in net goods trade will be …
This page has been updated with additional analysis since first publication. Inflation continues its rapid descent With inflation falling rapidly, risks are tilted towards the RBNZ cutting rates sooner than Q3, as we’re currently predicting. Consumer …
23rd January 2024
The new cap on international student visas is another reason to expect population growth to slow sharply. That will give the Bank of Canada confidence that CPI rent inflation will ease later this year, providing a clearer path for headline inflation to …
Central banks will probably continue to push back on expectations of rate cuts at their scheduled policy announcements in the coming weeks. But with inflation and wage pressures clearly moderating, we still think the Fed, ECB and Bank of England will cut …
History suggests that when one Monetary Policy Committee (MPC) member votes to cut interest rates, a majority of the nine members will agree about two meetings later. There have been 14 turning points in Bank Rate since the MPC’s inception in 1997, by …
The Bank of Japan sounds increasingly confident that it will be able to achieve its inflation target on a sustained basis. With Mr Ueda at the post-BOJ-meeting press conference again emphasising the importance of the spring wage negotiations, we think the …
This page has been updated with additional analysis since first publication. More wiggle room for a pre-election splash December’s better-than-expected public finances figures brought some cheer for the Chancellor after the recent run of poor outturns and …
Policy normalisation is in sight Although the Bank of Japan stood pat at its meeting today, we’re sticking with our view that policymakers will soon call time on negative rates. The Bank’s decision to leave its policy rate unchanged at -0.1% was correctly …
While Australian households are as indebted as ever and mortgage payments have hit fresh record-highs, lending standards continue to be sound, loan defaults remain subdued and banks are well capitalised. Accordingly, there’s no compelling case to tighten …
We expect evidence of distress to ramp up this year as loan extensions end. Many borrowers will be forced to either inject new capital, return assets to lenders or sell into a soft market. Those assets returned to lenders will also ultimately end up on …
22nd January 2024
If we are right to think that the Bank of England will begin lowering interest rates in June, the recent fall in mortgage rates should be sustained. The resulting drop in the cost of borrowing will boost demand as some first-time buyers who put their …
As core PCE inflation is on track to return to the 2% target by the middle of this year, we expect the Fed to cut interest rates by 25bp at every meeting from March onwards, with rates eventually falling to between 3.00% and 3.25% in early 2025. The …
Why are markets pushing back on rate cut expectations? How will the ECB play its upcoming meeting? What’s really happening to China’s economy? Group Chief Economist Neil Shearing tackles the big macro and market questions in our latest episode of The …
19th January 2024
We argued last week that there was little to support the idea that the “last mile” of getting inflation back to 2% will somehow be the hardest. But new data on rent inflation released this week raise the possibility that the disinflationary process won’t …
2023 saw the lowest number of existing home sales since 1995 A drop in existing home sales in December confirmed that they fell by 20% y/y in 2023 as a whole to their lowest level since 1995. (See Chart 1.) Lack of supply was the main reason existing home …
Falling inflation finally providing a boost to confidence The surge in the University of Michigan measure of consumer sentiment in January indicates that recent sharp declines inflation are finally feeding through, although we doubt this signals an …
There was little for the Bank of Canada to be encouraged by this week, with evidence of a further deterioration in the economy yet little sign of a fall in inflation expectations or downward pressure on core inflation. That puts the Bank in a tricky …
Retail sales volumes rose strongly last quarter Retail sales were weaker than expected in November, but earlier gains and the strong preliminary estimate for December still suggest that sales volumes grew substantially over the fourth quarter. The latest …
This week’s data releases called into question our forecast that the UK economy will experience a soft landing, by which we mean inflation falling back to the 2.0% target without a big contraction in GDP. Could cigarettes and containers ignite the CPI? …
This page has been updated with additional analysis since first publication. Bleak end to a dismal year, but a better 2024 awaits The 3.2% m/m fall in retail sales volumes in December was far worse than expected (consensus forecast -0.5% m/m, CE -1.0% …
Disinflation unlikely to stall Earlier this week, we learnt that new dwellings commencements continued in a tailspin, with housing starts falling to a 11-year low of 37,000 in Q3. That led some commentators to sound the alarm on how the resulting …
Note: Join us on our upcoming Asia Drop-in on 25th January. We’re discussing China’s missing stimulus, the Asian monetary policy outlook and much more. Register here for the 20-minute online briefing. Inflationary pressures moderating Inflation fell to an …
This page has been updated with additional analysis since first publication. Inflation will rebound early this year Inflation fell again in December, driven by declines in both fresh food and energy inflation. However, the bigger picture is that inflation …
18th January 2024
Overview – The easiest wins in the disinflation battle are behind us now that base effects from the previous surge in energy prices have run their course. Indeed, we expect energy effects to lift inflation in advanced economies slightly this year. But we …
Reversal of November spike not a sign of weakness Note: We’ll be discussing our above-consensus forecasts for US house prices and construction in an online briefing on 23rd January at 10:00 EST/15:00 GMT. Register now . Housing starts fell last month …
Lenders ready to meet increasing mortgage demand The latest Credit Conditions Survey showed a rise in the availability of mortgage credit in Q4 as financial market interest rates fell, but demand for mortgages slipped as mortgage rates took time to catch …
The Bank of England’s Q4 Credit Conditions Survey suggests the worst of the drag on economic growth from higher interest rates is fading. That suggests an economic recovery will begin later this year. The net percentage balance of banks’ supply of …
Central banks in both Australia and New Zealand are likely to remain in “wait and watch” mode in the near term, given lingering risks to the inflation outlook. However, we think concerns about inflation persistence are overdone, especially with tradables …
This page has been updated with additional analysis since first publication Labour market will turn faster than the RBA anticipates With labour market data for December disappointing expectations, we’re more convinced than ever that the RBA will take its …
Market was picking up even before latest slide in mortgage rates The December RICS Housing Market survey showed sales volumes rising and buyer demand recovering even before the further sizeable drop in mortgage rates in January. That’s encouraging for our …
CPI-trim and CPI-median are overstating inflation pressures Economy going from bad to worse Bank to start cutting interest rates in April The acceleration in the CPI-trim and CPI-median measures of core inflation in December suggests the Bank of Canada …
17th January 2024
This Global Markets Focus explains why we expect the S&P 500 to soar in 2024, in contrast to those who anticipate a much tougher year for the index after a banner 2023. Section 1 sets the scene with a brief overview of the change in the index since the …
We anticipate that mortgage rates will continue to fall in 2024, but more gradually than they have recently from 6.8% now to 6.25% by the end of the year. That won’t be enough to bring a great deal of stock on the market. At the same time, we expect a …
Manufacturing sector stagnating The muted rise in manufacturing output in December shows that the sector continues to struggle, even as consumption growth remains strong. The 0.1% m/m increase in manufacturing output in December meant that the …
Consumers end the year on a high The 0.6% m/m rise in retail sales in December may have been supported by the unseasonably mild weather, but it still means there is no sign that households are buckling under the pressure of higher interest rates with …
This page has been updated with additional analysis since first publication. Downward trend stalls, but drop to below 2% still coming in April The unexpected rise in CPI inflation from 3.9% in November to 4.0% in December (consensus and CE forecast 3.8%) …
We expect GDP growth to slow to a crawl this year, weighed down by weak consumption growth and sluggish export growth. While the virtuous cycle between prices and wages has shown signs of a slowdown in recent months, it will soon receive a boost when …
In recent months, there have been growing concerns that the rapid rise in rental inflation will force the Reserve Bank of Australia to keep rates higher for longer. To be sure, leading indicators suggest that rental inflation will continue to accelerate …
Lower mortgage rates supporting demand The decline in mortgage rates appears to be supporting demand, with home sales rebounding last month. While prices continued to fall in December, the sales-to-new listing ratio is now pointing to positive house price …
16th January 2024
We are downbeat on industrial total returns over the next two years compared to the consensus because of our relatively pessimistic views on both rents and cap rates. And we think the risks to long-term returns are skewed towards the downside, which, if …
Core inflation pressures still too strong Although the rise in headline inflation in December was mainly due to gasoline price base effects, the more worrying development is that the CPI-trim and CPI-median core measures both rose by a larger 0.4% m/m. …
Tepid lending in December closes a sluggish year for activity Net lending on commercial real estate (CRE) by banks was positive again in December, rising by $4.2bn in the month. (See Table 1.) That said, the monthly change was broadly in line with the …
This page has been updated with additional analysis since first publication. Wage growth fading fairly fast Another big drop in wage growth in November supports our view that domestic inflationary pressures are fading fairly fast. But the ongoing …
