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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. …
18th August 2023
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 …
This page has been updated with additional analysis since first publication. Consumer resilience continues The 0.7% m/m jump in retail sales in July suggests that tighter monetary policy is still having remarkably little impact on real economic activity, …
Interest rate-sensitive activity in advanced economies has fallen, but is still holding up rather well given how much interest rates have risen. This is partly due to the rebound in auto sales and more recently mortgage approvals. But we still think …
This page has been updated with additional analysis since first publication. Accelerating wage growth supports the case for one more rate hike The fall in employment in the three months to June and further rise in the unemployment rate will be welcomed by …
Most of the plunge in import volumes last quarter reflects lower energy imports. With the Ukraine war rekindling concerns about energy security and energy prices remaining stubbornly high, import volumes may continue to fall in future even if domestic …
This page has been updated with additional analysis since first publication . Underwhelming wage growth bolsters case for RBA to stay put The sluggish pace of wage growth in Q2 reinforces our view that the Reserve Bank of Australia won't lift interest …
This page has been updated with additional analysis since first publication. Above-trend growth won't be sustained Japan’s economy expanded at an extremely rapid pace last quarter, but we expect a renewed slowdown across the second half of the year. The …
While economic activity was generally more resilient than feared in the first half of 2023, we expect global growth to disappoint in the coming quarters. We doubt that another bout of policy stimulus will radically improve the outlook for China’s economy, …
14th August 2023
Total rise in July hides slowdown in commercial lending July saw the amount of outstanding debt secured against real estate rise (albeit marginally) after a sharp drop in June, driven by a strong rebound in residential lending. Across the commercial real …
Although central banks in both Australia and New Zealand are unlikely to drop their hawkish bias anytime soon, we suspect that their tightening cycles are now over. The RBNZ has already succeeded in sending New Zealand into a recession, which is only set …
Overview – With affordability stretched and the economy slowing, housing market activity is expected to remain weak over the coming quarters. While we expect house prices to lose some of their recent momentum, the worst of the correction appears to have …
11th August 2023
Falling expectations drag down confidence The University of Michigan consumer sentiment index stalled in August, with the index slipping back to 71.2, from 71.6. With tighter credit conditions and a weaker labour market likely to weigh on confidence …
Inflation and activity data at odds Core price pressures collapsing It might seem a little premature to be celebrating when annual core CPI inflation was still as high as 4.7% in July, down only trivially from 4.8%, but don’t be fooled by the strong …
Although export volumes fell for the second month running in June, the strength of imports suggests that domestic demand is holding up and the Bank of Canada will be pleased to see that import prices continue to fall. Export volumes weak, but imports …
The big swings in Treasury yields recently have sent some ripples through the US stock market. This Update sets out how we think this will continue to play out, for the equity market as a whole and across some particularly interest-rate sensitive sectors, …
Where the US leads, the UK often follows. So the evidence of broad-based, rapid disinflation in the US offers some hope for the UK. Indeed, at 7.9%, the UK is still lumbered with a CPI inflation more than twice the US rate (3.2%). At least July’s UK CPI …
This page has been updated with additional analysis since first publication. Resurgence in activity unlikely to last The 0.5% m/m rise in real GDP in June and 0.2% q/q increase in Q2 (CE, BoE, consensus 0.1% q/q) confirmed that a recession has so far been …
Wage growth & external demand holding up Data released this week showed that overall wage growth remained above 2% for the second consecutive month as a slowdown in regular earnings growth was offset by a strong contribution from bonus payments as firms …
Households continue tightening their belts Earlier this week, we got further confirmation that household spending in Australia is now in freefall. The ABS’ monthly indicator showed that the slowdown in household spending deepened in June. As a …
With lingering pandemic and energy support measures coming to a close and governments returning one eye to previous fiscal targets, fiscal policy will tighten a little in advanced economies over the coming years. This will contribute to slower growth. But …
10th August 2023
We are unconvinced by Christine Lagarde’s claim that the recent strength of employment in the euro-zone is due mainly to labour hoarding and shifts in the sectoral composition of employment. Instead, we suspect it is mainly due to understaffed firms …
Apart from lagging shelter prices, Fed already hit its inflation target The disinflationary pressures continued to build in July, with both headline and core CPI increasing by a moderate 0.2% m/m. Admittedly, the annual headline inflation rate actually …
The stark and unusual contrast between falling credit spreads of high-yield (HY) corporate bonds and rising ones of private-label commercial mortgage-backed securities (CMBS) in the US suggests investors expect the economy there to shrug off lingering …
Market conditions continue to worsen Given the recent rise in average mortgage rates to their highest level since 2008, we are not surprised by the further deterioration in the RICS headline survey figures. And as we do not expect market conditions to …
The data show a small, but limited, divergence in performance between overall class A and classes B and C office space. But that differential appears to have been driven by newly-built trophy space rather than the broader class A grouping. We expect this …
9th August 2023
Even though the financial strains that emerged after SVB’s collapse have dissipated, interest rate hikes have left overall financial conditions in major advanced economies close to their tightest since the GFC, posing downside risks to activity. As …
RBNZ to remain on hold Although inflation and wage growth remain strong, they are showing signs of cooling As recession deepens, rate cuts will be on the table in Q1 2024 With inflation coming off the boil and labour market conditions starting to …
The share prices of US banks have recovered some ground since a low point in May, as concerns about further failures in the industry have abated; Treasury yields have rebounded; and the economy has remained resilient. Even so, we’re sceptical banks will …
8th August 2023
Net trade weighed on second-quarter GDP growth Weaker global demand and the fading boost from easing supply shortages took a toll on exports in June, confirming that net trade weighed on second-quarter GDP growth. While the surveys point to further …
Exports set for renewed weakness soon The narrowing in the trade deficit to $65.5bn in June, from $68.3bn, mainly reflected a further slide in imports, with exports little changed. But with the survey evidence suggesting that renewed weakness in exports …
This page has been updated with additional analysis since first publication. Wage growth should slow as labour market slackens Wage growth remained strong in June as summer bonuses rose, but regular pay growth slowed and is unlikely to become strong …
We think the 10-year/2-year Treasury yield spread will become less inverted over the next year or so, but doubt this will come primarily via a continued rise in the 10-year yield like we saw last week. A striking part of last week’s Treasury sell-off was …
7th August 2023
With CPI inflation soon to fall below average earnings growth, the cost of living crisis appears to be coming to an end. But households won’t suddenly stop feeling the pinch. We suspect the level of real household disposable income will remain below where …
We previously argued that stretched housing affordability and a looser labour market would result in a second leg down in house prices. However, with the housing market going from strength to strength on the back of resurgent population growth, we now …
