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Although we no longer expect Gilts to outperform in local-currency terms, we do think they’re set to hold up better against Treasuries and Bunds over the rest of this year than they have done lately. Gilts have seen a renewed sell-off lately. The 10-year …
15th June 2023
Gains in sales & output both muted The 0.3% m/m increase in retail sales included a 1.4% m/m gain in the value of motor vehicle sales, which is very hard to square with the 6.5% m/m decline in light vehicle unit sales already reported by manufacturers. …
Sales benefitting from easing supply shortages The resilience of manufacturing sales suggests easing supply shortages are still supporting activity, with the transport sector reaping much of the benefits. Nevertheless, the surveys point to a weaker …
Manufacturing stagnant, but better than the drop back we had expected The 0.2% m/m decline in industrial production in May was due to a 1.8% m/m drop in utilities output and a 0.4% decline in mining. Manufacturing output increased by 0.1% m/m, which …
Sales soft, despite suspicious increase in vehicle sales The 0.3% m/m increase in retail sales included a 1.4% m/m gain in the value of motor vehicle sales, which is very hard to square with the 6.5% m/m decline in light vehicle unit sales already …
As expected, the Fed held its policy rate unchanged at between 5.00% and 5.25% today, but it made clear in the accompanying statement that pause was only to allow officials to “assess additional information and its implications for monetary policy”. In a …
Tight labour market will prompt more monetary tightening With the labour market still firing on all cylinders, we’re happy with our forecast that the Reserve Bank of Australia will lift the cash rate all the way to 4.85% by September. The 75,900 rise in …
Stagnant exports a prelude of downturn to come The trade deficit narrowed for an eighth consecutive month in May as both import prices and volumes continued to fall. “Core” machinery orders rebounded in April, but that still points to a fall in capital …
Struggling exports a prelude of downturn to come Export values inched up by just 0.6 y/y in May. That translated into a 3.1% m/m fall in seasonally adjusted terms. With export prices having risen by 2.0% m/m in May, volumes probably saw a sharp fall, …
Recession will drive RBNZ to cut rates by Q4 The contraction in Q1 GDP means that a recession is now well under way in New Zealand. Accordingly, we’re sticking with our forecast that the RBNZ will shift gears and start cutting rates before year-end. The …
Recession will drive RBNZ to cut rates by Q4 With New Zealand now in recession, we’re more confident that the RBNZ will start cutting rates by Q4 of this year itself. The -0.1% q/q contraction in production GDP was in line with what most, including …
Fed pauses as expected but, in hawkish move, eyes 50bp in additional rate hikes As expected, the Fed held its policy rate unchanged at between 5.00% and 5.25% today, but it made clear in the accompanying statement that pause was only to allow officials to …
14th June 2023
Florida and other parts of the Sunbelt (notably major cities in Texas) will likely face the most severe physical climate risk over the next 30 years. While this is unlikely to come as a major surprise, we don’t believe that this risk is being consistently …
Output will weaken despite increase in April The uptick in industrial production in April was mostly driven by strong growth in Ireland, with many other major euro-zone economies recording a fall in output. We expect industry to struggle this year as …
Resurgence in activity unlikely to last Note: We’ll be discussing the UK’s economic, housing market and policy outlook in light of the BoE’s June rate decision in an online briefing on 22nd June at 10:00 EDT/15:00 BST . Register now . The 0.2% m/m rise in …
While selling its exchange-traded fund (ETF) holdings at book value to the government wouldn’t impair the Bank of Japan’s balance sheet, we don’t think it would provide the boost to fiscal revenue that policymakers seem to be hoping for. And while the …
Resurgence in activity unlikely to last The 0.2% m/m rise in real GDP in April will further raise hopes that the economy will escape a recession this year. But the rise in GDP is not as good as it seems. And with the full drag from high interest rates …
We think UK real GDP rose a bit in April (07.00 BST) Euro-zone industrial production probably edged up in April (10.00 BST) We expect the Fed to leave interest rates unchanged (19.00 BST) Key Market Themes The 10-year Gilt yield has continued to march …
13th June 2023
With inflation still running hot, the Bank of England has little choice to keep raising interest rates. But how high will policymakers take Bank Rate, and – with headlines dominated by news of 6% mortgage rates – what will that mean for the UK economic …
Core inflation still uncomfortably high Headline CPI inflation fell to a more than two-year low of 4.0% in May, thanks to favourable base effects and another sharp drop back in energy prices last month but, with core price inflation still as high as …
Core inflation remains uncomfortably high for the Fed Headline CPI inflation fell to a more than two-year low of 4.0% in May, thanks to favourable base effects and another sharp drop back in energy prices last month but, with core price inflation still as …
Borrowing curbed in response to rising interest rates With mortgage rates surging, the number of loans issued to buy a home dropped sharply in Q1, with Buy-to-Let (BTL) lending seeing the most severe drop. Those that did press ahead with a home purchase …
Reacceleration in wage growth supports the case for further rate hikes Note: We’ll be discussing the Fed and ECB June decisions and previewing the Bank of England's upcoming meeting in a briefing at 10:00 EDT/15:00 BST on 15 th June. Register here . The …
Reacceleration in wage growth supports the case for further rate hikes The labour market became tighter in April and wage growth reaccelerated. That will only add to the heat already on the Bank of England to raise interest rates further at the policy …
One reason for the slump in productivity is that the recent surge in working hours is producing diminishing returns. And we suspect that disruptions caused by the pandemic prevented firms from stepping up business investment in response to record capacity …
With less than a year and a half to go until the next general election, calls for the Chancellor, Jeremy Hunt, to cut a range of taxes have been growing. But recent economic developments mean the Chancellor is unlikely to have much fiscal firepower …
12th June 2023
Surprise increase in lending in May, but signs of distress growing While bank net lending to commercial real estate (CRE) turned positive again in May, growing signs of distress for existing loans point to further weakness ahead. (See Chart 1.) The …
Overview – The economy held up better at the start of the year than we had anticipated, but we still expect it to enter a recession in the second half of the year. Even though underlying inflation probably hasn’t peaked yet, we suspect the Bank of Japan …
The fall in employment in May suggests the Bank might not need to follow its 25bp hike this week with another in July. But with employment among prime-age people continuing to rise strongly and house prices surging last month, we still suspect the Bank is …
9th June 2023
The seven-month run of house price declines recently ground to a halt, with the Case-Shiller index showing an increase in prices in both February and March. This was partly driven by the temporary boost to demand at the start of the year from declining …
The euro-zone has fallen into recession, albeit only by the finest of margins – the economy contracted by 0.1% q/q in both Q4 last year and Q1 this year. The consensus view is that the worst is now behind us and that growth will accelerate, presumably in …
Labour market starting to loosen The fall in employment and the increase in the unemployment rate to 5.2% in May will probably not prevent the Bank of Canada from raising interest rates again at its July meeting, but the moves reinforce our view that the …
We expect the Fed to leave interest rates unchanged at next week’s FOMC meeting but, in what could be characterised as a “hawkish skip”, to signal via forward guidance (updated SEP forecasts and language in the statement) that officials are minded to hike …
Labour market starting to loosen The increase in the unemployment rate to 5.2% in May will probably not prevent the Bank of Canada from raising interest rates again at its July meeting, as the weakness was partly a statistical effect related to reduced …
Central Bank Drop-In (15th June): We’ll be discussing the Fed and ECB June decisions and previewing the Bank of England’s upcoming meeting in a 20-minute online briefing at 10:00 EDT/15:00 BST on Thursday . Register Now. We learnt this week that the …
Central Bank Drop-In (15 th June): We’ll be discussing the Fed and ECB June decisions and previewing the Bank of England’s upcoming meeting in a 20-minute online briefing at 10:00 EDT/15:00 BST on Thursday . Register Now. The OECD joined the ranks of the …
Q1 GDP saw large upward revision The government in its May monthly economic report upgraded its view of the economy, changing its assessment to say that “the economy is recovering moderately”, dropping the previous qualifier that “there was some …
Rate hikes will drive double-dip housing downturn The big news this week was RBA Governor Lowe indicating that the Board’s patience to tolerate high inflation was waning. The Bank’s hawkish turn, coming at a time when unit labour costs are growing at …
Our updated industrial metros analysis, which now incorporates the current vacancy rate, continues to point to Memphis as having the strongest prospects for rent growth over a three-year horizon. Miami, Orlando, San Diego, LA and Nashville also rank …
8th June 2023
Refinancing risks increase The recent upward revision to our mortgage rate forecast and the fact that the majority of those that need to refinance this year are on two-year fixes means that we are now more worried about the risk posed by refinancing. …
Recent economic difficulties have forced online retail to tighten their returns policies. At face value, this seems good news for retail property as it may shift demand back to stores for certain categories. However the change is unlikely to be a big …
Normalising supply could make future drop in demand more damaging The significant improvement in the RICS survey in May echoed the pause in house price falls in the past few months. But the survey also showed an increase in supply, which could …
Net trade to boost GDP in Q2 The narrowing of the trade surplus in April was driven in large part by a deterioration in the terms of trade. We think net exports will actually provide a modest boost to GDP growth this quarter. The decline in the trade …
Japan’s carmakers face an existential threat from the emergence of cheap EV exports from China. Even in a benign scenario where carmakers eventually jump on the EV bandwagon, we suspect that they would have to rely on battery technology from China and …
Net trade to boost GDP in Q2 The rise in the import bill in April likely overstates the strength of domestic demand in Australia. The decline in the trade surplus to $11.2bn in April, from a downwards-revised $14.8bn in March, was sharper than most had …
June pause to be followed by July hike, taking rates to a peak of 5.25%-5.50% Labour market resilience means we now don’t expect rates to be cut until Q1 next year Fed funds target range to fall to 2.75%-3.00% by end-2024 There appears to be enough …
7th June 2023
The Bank of Canada’s 25bp interest rate hike today is unlikely to be the last, with the rapid turnaround in the housing market and concerning underlying inflation dynamics raising the case for at least one more hike in July, to take the policy rate to …
According to our proprietary interest rate-sensitive indicators, activity in advanced economies has so far proven remarkably resilient to higher interest rates. A lot of this has been due to a rebound in auto sales related to pandemic distortions, whereas …
