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The SAVE student loan plan eases the burden on low-income households and should reduce the economic impact as repayments resume in October. Nonetheless, with the hit to disposable incomes just one of several headwinds in the fourth quarter, it is still …
29th August 2023
Note: We’ll be discussing the China growth/stimulus question, the BOJ’s policy outlook, Indian food price inflation and more in our monthly Asia Drop-In on Thursday, 31 st August . Register here to join the online briefing. This page has been updated with …
This page has been updated with additional analysis since first publication. RBA will look past upswing in retail sales We don’t believe that the healthy uptick in retail sales in July represents a second wind for the Australian consumer. Accordingly, …
28th August 2023
After a relatively cautious speech at Jackson Hole from Fed Chair Jerome Powell and data this week which cast doubt on the idea of an economic resurgence, we still aren’t convinced that the rise in market interest rate expectations for the next few years …
25th August 2023
The worst Canadian wildfires on record appear to be behind much of the recent weakness in GDP and, with more areas now under evacuation orders, the data are likely to remain weak in the coming months. Broader negative impact than 2016 wildfires Worst “on …
Solid growth not yet prompting Fed rethink Fed Chair Jerome Powell underscored the FOMC’s commitment to data dependence in his Jackson Hole speech today, but there was no suggestion that signs of economic resilience have already prompted Fed officials to …
Property yields rose across all sectors in Q2. However, for the retail sector this was offset by rises in the 10-year treasury yield. Consequently retail saw a small decline in valuations, whereas valuations in the other sectors improved. That said, both …
Strong immigration and the turnaround in the housing market raise the chance that the economy will avoid recession but, with the Bank of Canada keeping further rate hikes on the table, we still judge that GDP will contract later this year. Even if …
This week’s bigger fall in UK rate expectations, bond yields and the exchange rate compared to elsewhere is largely due to the markets deciding that a weaker economy will trim inflation, meaning the Bank of England has less work to do. Market pricing is …
Our forecast that the Bank of England won’t start cutting interest rates until the second half of 2024 means mortgage rates are likely to stay between 5.5% and 6.0% for the next 12 months. While transactions volumes have only seen a modest decline so far, …
Momentum behind price rises starting to slow The economic data released this week suggest that the case for policy rate hikes in response to above-target inflation is still not compelling. For a start, the Tokyo CPI showed that inflation excluding fresh …
New Zealand activity in free fall Data published by StatsNZ on Wednesday showed that retail sales volumes fell by 1% q/q last quarter, a much weaker result than the 0.4% contraction anticipated by the analyst consensus. The weakness in retail sales was …
This page has been updated with additional analysis since first publication. Underlying inflation losing momentum While underlying inflation remained at a 40-year high in the August Tokyo CPI, the momentum of price increases has slowed markedly which …
We forecast a 170,000 increase in non-farm payrolls in August, illustrating that despite the apparent resilience of GDP growth, employment growth is still trending lower. The increases in employment of 185,000 and 187,000 over the previous two months have …
24th August 2023
Equipment investment set to stagnate The 5.2% m/m fall in durable goods orders mainly reflected a reversal of the earlier jump in aircraft orders and wasn’t actually as bad as we had expected, with core orders also surprising on the upside. But the …
Having risen in value by much less than houses over the past three years, flats were selling at the biggest discount to houses on record at the beginning of the year. But higher mortgage costs are causing buyers to reassess what they can afford to buy, …
All-property values are down by 10% from their mid-2022 peaks, but we think there is still another 15% to come by the end of 2024. Much of that price fall will be driven by a rise in cap rates in response to higher interest rates. But, due to the …
23rd August 2023
GDP in those sectors normally most sensitive to interest rates has weakened over the past year and is now well below the pre-pandemic trend. The resilience of overall economic growth to higher interest rates is mainly due to ongoing recoveries elsewhere. …
Survey consistent with economic stagnation The slump in the S&P Global composite PMI to a six-month low in August casts further doubt on the idea that the economy is accelerating, with the index consistent on past form with GDP growth of close to zero. …
Retail sales still struggling as higher interest rates feed through Retail sales volumes broadly stagnated over June and July and would have performed much worse were it not for the improving supply of motor vehicles. While the ongoing wildfires across …
This page has been updated with additional analysis since first publication. Higher interest rates dragging the economy into recession The fall in the activity PMI to below the boom-bust level of 50.0 in August supports our long-held view that the economy …
In an environment in which firms feel able to pass on higher energy costs in their selling prices, the latest leap in wholesale gas prices poses an upside risk to our forecast for core CPI inflation to fall to 2.0% by the start of 2025 and to our forecast …
This page has been updated with additional analysis since first publication. PMIs point to continued strength in economic activity The composite PMI remained high in August which points to continued strength in GDP growth, but a slowdown from the bumper …
This page has been updated with additional analysis since first publication. Limited scope for pre-election splurge despite borrowing undershoot July’s public finances figures continued the recent run of better-than-expected news on the fiscal position. …
22nd August 2023
We estimate that firms have now passed on all of the increase in import costs to consumer prices which suggests that inflation will slow sharply over the coming months. Japan’s import prices have fallen sharply in recent months. However, goods inflation …
Overview – After a brief respite earlier this year, property yields are once again on the rise, driven by a further increase in gilt yields. We don’t expect a repeat of the surge seen last year, but we also think any compression beyond this year will be …
21st August 2023
With inflation cooling, the government may soon become more willing to support the economy, but we doubt it will provide as much support as it did during the global financial crisis. However, net trade may not provide as much support as during previous …
While the renewed rise in headline inflation in July seems concerning, a closer look shows disinflationary pressures are still building in key areas. Together with easing demand, that should give the Bank of Canada enough reason to leave rates on hold in …
18th August 2023
Although the US stock market has started to come under pressure from rising Treasury yields, the valuation of equities relative to government bonds is still a long way from being as stretched as it was before the dot com bubble burst and on the eve of the …
The Bank of England has more work to do The Fed’s work may be done, but as this week’s UK inflation and labour market releases made clear, this doesn’t mean the Bank of England can relax. First came figures released on Tuesday showing that the 3myy rate …
We continue to expect historic highs for apartment completions in 2023-24 even though there are signs some will be deferred. This also means that, although new permits have dropped back amid softer market conditions and a tougher outlook for investors, we …
The continued surge in long-term Treasury yields to their highest level since before the financial crisis, as expectations of an economic re-acceleration have mounted, sets a fraught backdrop ahead of Fed Chair Jerome Powell’s speech at Jackson Hole next …
This page has been updated with additional analysis since first publication. Under the weather The 1.2% m/m fall in retail sales volumes in July probably had more to do with the unusually wet weather than the impact of higher interest rates on consumer …
Economy starting to run hot Given that our GDP tracker pointed to a much smaller rise, it’s possible that the blistering 1.5% q/q rise in Q2 GDP will be revised down. But that strength is consistent with the composite PMI, which hit a decade-high in May. …
New Zealand’s recession to deepen On Wednesday, the RBNZ left its official cash rate unchanged at 5.50%. Surprisingly, however, the Bank lifted its OCR track higher amid concerns about upside risks to the inflation outlook. In fact, the Bank predicts it …
This page has been updated with additional analysis since first publication. Underlying inflation will peak soon Headline inflation was unchanged in July as falling energy prices offset a further pick-up in underlying inflation. While we expect goods …
Housing market coming back into balance The decline in the home sales-to-new listing ratio in July supports our forecast that house price growth will slow over the rest of the year. While housing starts remained high in July, they still look likely to …
17th August 2023
Mortgage arrears were still low in Q2, but the number of Buy-to-Let (BTL) mortgages in early arrears increased at an alarming pace. We suspect that will continue in Q3. A growing number of landlords inability to meet their mortgage costs is likely to lead …
This page has been updated with additional analysis since first publication. Unemployment rate ticks higher A boost to the labour supply is helping to take the heat out of Australia’s tight labour market. Accordingly, we’re sticking with our view that the …
This page has been updated with additional analysis since first publication . Net trade boost reversing in Q3 The July trade data suggest that the huge boost from net exports in Q2 will unwind this quarter, which will result in a sharp slowdown in GDP …
Fed officials in wait-and-see mode The minute of the Fed’s late July meeting suggest that, amid “tentative signs that inflation pressures could be abating”, officials were in no rush to follow up the 25bp rate hike at that meeting with another in …
16th August 2023
Growth in the real economy appears to be gathering momentum, but with survey-based indicators still weak and credit conditions continuing to tighten, we expect that rebound to be short-lived. In contrast, labour market conditions continue to ease. Nominal …
Single-family starts rebound, but confidence slips Single-family starts rose again in July, in line with a 13-month high in homebuilder confidence in the month. However, confidence slipped again in August. Furthermore, with the Fed unlikely to start …
Manufacturing boosted by seasonal adjustment problems The 1.0% m/m surge in industrial production in July was partly due to a weather-related jump in utilities output and, although manufacturing output also rebounded by a solid 0.5%, the surveys suggest a …
This page has been updated with additional analysis since first publication. Services inflation still uncomfortably high CPI inflation fell to a 17-month low of 6.8% in July, as the effects of the lower utility price cap kicked in. But with services price …
We no longer expect the economy to enter a recession across the second half of the year. But with external demand set to remain soft and real household incomes declining for a while yet, the recent strength in activity won’t last. And with plunging import …
The Reserve Bank of New Zealand left rates on hold, as was widely expected. However, the minutes of today’s meeting were unambiguously on the hawkish side, with the Committee indicating the need to keep policy settings restrictive for a protracted period. …
RBNZ signals extended pause All 29 of the analysts polled by Reuters, including ourselves, correctly predicted the RBNZ’s decision to leave the OCR unchanged at 5.50%. The minutes of the meeting reiterated the RBNZ’s tightening bias. The Committee appears …
On the back of the remote work revolution, US downtowns have seen reduced office-led footfall and rising crime rates. Cities will need to be proactive to drive conversion to alternative use and to find ways to regenerate what were often thriving areas …
15th August 2023
Encouraging signs under the surface This page has been updated with additional analysis since first publication. While the continued above-target gains in the CPI-trim and CPI-median core measures may cause some concern for the Bank of Canada, there were …
