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With much of the global economy holding up surprisingly well and inflation not coming down as quickly as expected, investors are weighing up the risk that policy rates remain elevated for much longer than previously thought. This Update discusses what …
3rd March 2023
While Q4 GDP was broadly in line with our expectations , a look under the hood shows that the Australian consumer is on much weaker ground than we had anticipated. The starting point for our pessimism is the ongoing weakness in household incomes. Indeed, …
Large fall in January industrial output The 4.6% m/m plunge in industrial production in January partly reflected disruptions caused by the early start to the Lunar New Year this year. Oddly, unlike export volumes, which typically show an equally strong …
Bank under political pressure to abandon Yield Curve Control as inflation surges Incoming Governor Ueda seems to have been given a mandate to end the policy However, existing Governor Kuroda may well spring one last surprise Yield Curve Control is on …
Broader inflation outlook still intact The unemployment fell slightly in January but we’re still expecting it to rise through mid-year due to an economic downturn. Meanwhile, energy inflation fell by less than we expected in Tokyo as government subsidies …
Tokyo CPI data suggest some upside risks to our inflation forecasts The unemployment rate edged down in January but the job-to-applicant ratio held steady, suggesting the labour market doesn’t have room to tighten much further. Meanwhile, Tokyo inflation …
2nd March 2023
We think inflation in Turkey eased slightly to 54% in February (07.00 GMT) Final PMIs in Europe may confirm that activity is holding up better than expected (09.00 GMT) We expect the US ISM services index to have fallen back in February (15.00 GMT) …
The current economic downturn will mean that short-to-medium term property performance is under-par. But over a longer horizon, we expect real estate returns to reassert their traditional position somewhere between bonds and equities. Last year was an …
After the blowout 517,000 gain in January, we expect a more modest 200,000 increase in non-farm payrolls in February. But given the potential impact of weather and seasonality effects in January there is the possibility of another shock last month, albeit …
Q4 GDP growth to remain at 0.2% The increase in capital spending reported in today’s “Financial Statements Statistics of Corporations” is broadly consistent with the preliminary Q4 GDP estimate. That means Q4 GDP growth is likely to remain at 0.2% q/q in …
Although the fall in house prices slowed significantly in February, we are not convinced that Australia’s housing market is out of the woods yet. Even so, there are growing indications that dwellings investment will take less of a hit than we had …
Terrible 2022 helps boost outlook for 2023 The latest IPF Consensus Survey showed a modest upgrade to forecasts for total returns in 2023, driven by an uplift to the capital value view. That looks to reflect the larger-than-expected fall in capital values …
1st March 2023
The broad-based improvement in the output components of February’s manufacturing PMIs suggests that the worst of the global industrial downturn is already in the rear-view mirror. That said, it is too early to call a durable turnaround in industrial …
Still firmly in contractionary territory The modest rebound in the ISM manufacturing index to 47.7 in February, from 47.4, leaves it firmly in contractionary territory, and should temper recent talk of a manufacturing resurgence on the back of …
Encouraging signs in January CPI and economy has slowed sooner than expected But labour market still tight and wage pressures too strong Risk of higher interest rates elsewhere also keeps pressure on the Bank The fall in CPI inflation in January and …
Rise in mortgage rates cuts home demand Stronger-than-expected economic data led to a resurgence in mortgage rates in February, which put a stop to a tentative recovery in mortgage applications for home purchase. This points to sales staying close to …
Higher interest rates hurt housing, but other borrowing remains strong While January’s money and credit figures suggest that higher interest rates are continuing to act as a drag on the housing market, they appear to be having less influence in other …
Net lending holds up as even as investment collapses Net lending to property was once again positive in January, even as commercial property investment collapsed in the final quarter of last year. Investors may be preparing to re-enter the market and …
Q4 spike in mortgage rates continues to depress approvals The spike in mortgage rates in October and November last year ensured that mortgage approvals remained at a similar level to the depths of the 2007-09 financial crisis in January. That could mark …
RBA’s hawkishness suggests rates will rise for a few more months However, softer incoming data suggest that the peak in rates isn’t far off Looming slowdown in activity and inflation opens door for rate cuts before year-end The RBA adopted a more …
Higher interest rates hurt housing but not other borrowing January’s money and credit figures suggest that higher interest rates are continuing to act as a drag on the housing market, but they appear to be having less influence in other areas of the …
House prices continue to slide The further fall in house prices in February will keep optimism based on reports that demand has recovered in check. Indeed, even if buyer volumes have recovered, the amount they can spend on a new home has been reduced by …
Stretched affordability will continue to push down prices Although the decline in house prices slowed markedly in February, we’re not convinced the worst is over. As such, we expect house prices to fall by another 6% before the year is up. The 0.2% m/m …
Slowdown in inflation won’t prevent RBA from lifting rates to 4.1% GDP growth softened last quarter and inflation slowed sharply in January. But with inflation still very high, that won’t prevent the RBA from hiking the cash rate to a peak of 4.1% in May …
GDP growth will slow sharply this year GDP growth softened last quarter and inflation slowed sharply in January. But with inflation still very high, that won’t prevent the RBA from hiking the cash rate to a peak of 4.1% in May. The 0.5% q/q rise in Q4 GDP …
House prices set for further falls in 2023 Despite a sixth consecutive month of falling house prices in December, affordability was still stretched even before the renewed rise in mortgage rates. As a result, it is likely that prices will continue to fall …
28th February 2023
Economy stagnates, supporting the Bank’s move to the sidelines The stagnation in fourth-quarter GDP, together with the downward revision to third-quarter GDP growth, leaves the economy in worse shape than the Bank of Canada expected. That is another …
A widening in profit margins could mean that inflation is slower to fall back to the Bank of England’s 2.0% target than we expect. That would cause the Bank to raise interest rates even further than we currently anticipate and/or keep them higher for …
Goods spending will fall for second consecutive quarter While retail sales bounced back in January, the rebound probably won’t be enough to prevent a contraction in sales volumes across the first quarter . The 1.9% m/m rise in retail sales in January was …
Industrial activity should rebound in February We suspect that the early start to the Lunar New Year was partly responsible for the sharp fall in industrial production in January and there should be a strong rebound in February. Meanwhile, retail sales …
Sales volumes will probably fall further this quarter While retail sales bounced back in January, the rebound probably won’t be enough to prevent a contraction in sales volumes across the first quarter. The 1.9% m/m rise in retail sales in January was …
Industrial output set for February rebound Industrial production contracted sharply in January and we suspect the early start to the Lunar New Year was partly responsible and there should be a strong rebound in February. Meanwhile, retail sales volumes …
We expect Hungary’s central bank to leave its policy rates on hold (13.00 GMT) US consumer confidence may have recovered a bit but is probably still low (15.00 GMT) Join our Drop-In on the long-run economic and market impacts of fracturing (15.00 GMT) …
27th February 2023
Resilience of core orders unlikely to last The 0.7% m/m rebound in core durable goods orders in January rounds off a month of strong activity releases and suggests business investment will hold up a bit better in the first quarter than we had thought. …
Resilience of core orders likely to be temporary The 0.7% m/m rebound in core durable goods orders in January rounds off a month of strong activity releases and suggests business investment will hold up a bit better in the first quarter than we had …
Energy Performance Certificates (EPCs) are the main benchmark for environmental standards in UK housing. There is evidence that they are improving efficiency in new-builds and new regulations will enforce change on rental properties, but this progress …
New home sales continue to outperform wider market Price reductions and generous incentives offered by homebuilders helped new home sales continue to outperform the wider market in January. But a renewed rise in mortgage rates will weigh on new home …
24th February 2023
The larger-than-expected fall in CPI inflation in January was partly due to one-off effects, but still reduces the chance that the Bank of Canada will be forced to resume raising interest rates. Nevertheless, the renewed rises in the job vacancy rate …
With markets responding to recent strong data by ramping up interest rate expectations, there doesn’t yet seem to be much need for the Fed to embark on a renewed hawkish turn. The income and spending data confirmed that real consumption rebounded …
Resurgence in both real spending and inflationary pressure The unexpectedly strong 0.6% m/m increase in core PCE in January, which pushed the annual rate of core inflation up to 4.7%, from 4.6%, is another sign that the Fed might have to leave its policy …
The more hawkish tone in financial markets this week is justified. Prior to this week, investors seemed to be optimistic that the previous increases in interest rates would be enough to bring inflation back down to the Bank of England’s 2.0% target, and …
Overview – The surge in yields seen in 2022 will not be repeated in 2023. With much of the repricing occurring last year we think all-property equivalent yields will see only a modest rise of 30bps this year. But rents will be hit, as the dual drags of …
Economy much weaker than thought in Q4 The downward revision to German Q4 GDP means the hit to activity at the end of last year was closer to our original expectation. It also suggests a technical recession in Germany during Q4 and Q1 is likely. Today’s …
Over the past week we’ve learned two important pieces of information. First, the housing downturn, which has been the most rapid in Australia’s modern history so far, came to an abrupt halt in February as prices bounced back in Sydney and Melbourne. …
House prices bounced back in February, led by Sydney. While leading indicators point to an improvement in housing market activity, the RBA’s determination to raise interest rates further means that affordability will remain extraordinarily stretched. …
Inflation will fall below 2% by mid-2023 Inflation hit a four-decade high in January and while we still expect inflation to fall below the Bank of Japan’s 2% target by mid-year thanks largely to the government’s energy subsidies, there are now upside …
Upward momentum in food inflation appears spent Inflation hit a four-decade high in January but due to stalling food inflation and the government's energy subsidies, we expect it to fall below the Bank of Japan's 2.0% target by mid-year. Headline …
23rd February 2023
Commercial crude oil stocks set to rise even further There was another strong rise in commercial crude stocks last week. With little prospect of any upturn in domestic demand anytime soon, commercial stocks should continue to rebound in the coming months. …
Q4 property valuation scores rose from their Q3 troughs, as equity earnings yields fell and property yields all increased. Even so, that left all major sectors still looking overvalued, suggesting yields have further to rise before property looks fairly …
We think the recent outperformance of the US “big-tech” “super-sector” could continue, but not because of the “bargain hunting” that we think has caused it to occur despite higher real Treasury yields . The rise of more than 30bp in the 10-year TIPS yield …
