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PMIs suggest we’re already in recession While the composite flash PMI improved marginally in November, it stayed firmly below the no-change level of 50.0, which is consistent with our view that the economy is probably already in recession. The composite …
23rd November 2022
Recent monthly data from the advanced economies have tended to exceed analysts’ gloomy expectations. This is partly due to an easing of supply shortages, which could offer some further support to output and spending in the near term. However, this …
RBNZ will hike rates above 5.0% The Reserve Bank of New Zealand hiked the overnight cash rate by 75bp as most had anticipated and it now seems likely that rates will peak closer to 5.5% instead of our current forecast of 5.0%. The statement was very …
Italy’s draft 2023 budget confirms that, for now, the new right-wing government is committed to fiscal responsibility. As a result, the risk of turbulence in BTP markets has fallen, but it remains high given Italy’s large public debt and the prospect of …
22nd November 2022
Retail sales struggling for momentum The small fall in retail sales volumes in September appears to have been reversed in October but, more generally, sales volumes have been little changed for the past six months and the low leve of consumer confidence …
Energy price support puts borrowing back on upward trend October’s public finances figures showed that government borrowing is no longer coming in below last year’s monthly totals. And the combination of the government’s energy price support and …
Although we think the yields of high-grade, long-dated government bonds will fall in general in the next couple of years, we expect those of Bunds to fall by less than those of Treasuries, as comparatively sticky inflation in the euro-zone keeps monetary …
21st November 2022
High oil prices have led to a recovery in US oil investment this year. But US crude production gains have been tempered by rising business costs and an emphasis on returning profits to shareholders. We expect the situation to be similar next year, with US …
Headline inflation shot up to 3.7% y/y in October , the strongest since December 1990 while inflation excluding fresh food and energy rose from 1.8% to 2.5%. Although this puts inflation well above the Bank of Japan’s target, the case for tightening is …
Rising mortgage rates cut sales A renewed rise in mortgage rates led to the largest month-on-month decline in existing home sales since February. As the impact of higher rates continues to feed through in the coming months, we expect sales to fall further …
18th November 2022
As the dust settles on this week’s Autumn Statement, we take a step back and answer three key questions. (Clients can catch up on our detailed analysis and our Drop In webinar following Thursday’s fiscal event here and here .) With the economy entering …
Although the data this week showed renewed rises in the annual rates of CPI-trim and CPI-median inflation in October, our calculations show that the timelier 3-month annualised measures both declined. That could persuade the Bank of Canada to drop down …
The cost-of-living crisis will have an impact on UK high streets for much of the next year. That will not be helpful for retail property rents, although given they are starting from a low base, we think the sector will avoid the meltdown of the pandemic …
The October inflation data highlighted a contrast between the US and Europe, with core price pressures easing materially in the US but staying stronger in the euro-zone and UK. We think this will be an enduring feature of relative inflation prospects in …
Media blaming weak yen and virus for Q3 GDP fall The economy shrank by 0.3% q/q in Q3 due to a surge in real imports, as well as disappointing private consumption and investment growth. Some media outlets have blamed the weak yen and COVID for the …
Only a temporary halt to the downward path The 0.6% m/m rise in retail sales volumes was larger than both we (0.0% m/m) and the consensus (+0.2% m/m) had expected. Sales volumes were probably supported by the reversal of bank holiday effects in October. …
Bank of Japan to maintain policy despite soaring inflation Headline inflation remained set a new three-decade high in October and will remain near those highs this quarter. That said, the Bank of Japan will remain steadfast in maintaining its ultra-easy …
17th November 2022
In his Autumn Statement, the Chancellor, Jeremy Hunt, appears to have pulled off the tricky task of reassuring the financial markets of the government’s fiscal discipline while also managing not to deepen the recession. Our economic forecasts suggest he …
Japan’s headline inflation probably rose to 3.5% in October (Thu., 23.30 GMT) We think UK retail sales volumes were flat in October (07.00 GMT) We suspect Chile’s GDP contracted by 0.3% q/q in Q3 (11.30 GMT) Key Market Themes The market reaction to …
Our current view is that we see a mild recession in H1 2023, but if we were to see a more substantial drop in GDP, we think the extra downside impact would be felt most in the apartment sector. Indeed, if GDP were to fall by an additional 1% …
Weak builder confidence points to further declines in starts Single-family starts fell to 855,000 annualised in October which was much stronger than what was implied by the low level of homebuilder confidence. We expect further declines in new home sales …
Chancellor satisfies the markets and helps the economy when it needs it The £55bn (2.0% of GDP) tightening in fiscal policy announced today by the Chancellor, Jeremy Hunt, appears to have been enough to satisfy the financial markets. What’s more, he’s …
Deficit to narrow by end-2022 The trade deficit widened but stayed below the record high in August, but with the yen strengthening significantly in recent weeks, the deficit should narrow later this quarter. Export values rose by a slower 25.3% y/y …
Yen rally to help narrow trade deficit The trade deficit widened but stayed below the record high in August, but with the yen strengthening significantly in recent weeks, the deficit should narrow later this quarter. Export values rose by a slower 25.3% …
Weak new home sales weigh on housing starts The plunge in new home sales in Toronto in September points to further falls in housing starts, although there are at least some signs that the worst may be behind us for home sales and that the pressure on …
16th November 2022
We suspect the underperformance of US equities that has accompanied the US dollar’s slump so far this month will become a feature from mid-2023, as the currency eventually comes under sustained pressure. Since the end of October, MSCI’s USA Index has …
The negative correlation between the US dollar and the price of oil has reasserted itself in recent months, and we think it will persist as the looming global recession pushes the dollar higher and oil price lower. Although the price of oil hasn’t risen …
The small increase in vacancy in Q3 supports our view that the rental market is turning a corner and makes us increasingly confident in our call that rents will fall next year. Conditions remain tighter in the homeowner market. But higher interest rates …
Core inflation pressures better than they look Although the annual rates of CPI-median and CPI-trim edged up in October, the 3-month annualised rates that the Bank of Canada is now focussed on declined. As that for CPI-median is now in the 1% to 3% …
Core inflation pressures better than they look Headline inflation was unchanged at 6.9% in October and the CPI-median and CPI-trim measures of core inflation increased, but the latter was mainly due to unfavourable base effects. It appears that the …
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Autumn Statement at 11.30am on Thursday 17 th November. We will send a Rapid Response shortly after the speech, we are hosting a …
The recent surge in rental growth to a record high has been widely reported, but the usual explanations are unsatisfactory. Population indicators don’t suggest a sudden rise in demand, and there is little evidence of landlords selling up. Instead, we …
Inflation may have peaked, but battle not yet won It’s possible that the big leap in CPI inflation from 10.1% in September to a new 40-year high of 11.1% in October will mark the peak. But core inflation may yet rise further, which is why we think the …
Losing streak has further to run Weakness in the manufacturing sector led to “core” machinery orders falling for a second consecutive month in September. Worse still, machine tool orders indicate that the two-month losing streak, rare as it is, hasn’t …
Imminent rebound in orders to be soft “Core” machinery orders fell for a second consecutive month in September due to weakness in manufacturing orders. While the usual see-saw patterns in orders point to a rebound that should materialise in October’s …
Even as Central London office vacancy rates rose to a 12-year peak in Q3, annual rental growth ticked-up to a three-year high. That marks a reversal from the situation prior to COVID-19, when a tight market failed to spark a strong rise in rents. But we …
15th November 2022
Manufacturing sales volumes set to fall further Manufacturing sales volumes edged down in September and, with the business surveys continuing to weaken and inventory levels now looking unusually high, they are likely to fall further. We expect weaker …
Recovery in sentiment won’t prevent recession The rebound in the ZEW and other sentiment indicators in November does not change the fact that the German economy is firmly headed for recession. The rise in the ZEW economic sentiment indicator from -59.2 …
Labour market looks like it may be turning a corner September’s labour market figures reveal further signs that the labour market is becoming less tight. That may alleviate some of the pressure on the Bank of England to repeat November’s 75 basis point …
Economy to rebound in Q4 after Q3 contraction Japan’s economy contracted in Q3, with both private consumption and business investment posting far weaker results than timelier data had suggested. The single largest drag was from net trade due mostly to a …
Activity data likely to show that China’s economy lost momentum last month… (02.00 GMT) …but we expect the PBOC to refrain from cutting its MLF rate tomorrow We think tightness in the UK labour market eased in September (07.00 GMT) Key Market Themes …
14th November 2022
Despite the recent sharp drop in the greenback, we doubt this is the end of the dollar bull market. Yesterday’s softer-than-expected US CPI print prompted the largest single-day drop in the DXY index since December 2015. Indeed, it was one of only a …
11th November 2022
We don’t expect the 10-year JGB yield to rise above the top of the Bank of Japan’s tolerance band, and think it may even fall back to the middle of that band next year as yields continue to decline elsewhere. Yields fell sharply around the world, and the …
The big fiscal tightening set to be unveiled at the Autumn Statement on 17 th November is coming at a time when the economy is probably already in recession. And the fiscal consolidation, rumoured to be worth a total of £54bn (1.9% of GDP), could risk …
Underlying price pressures to remain very strong The rise in core inflation in Germany in October confirms that underlying price pressure in the country are still building. We expect the core rate to remain well above 2% throughout next year. Final HICP …
Consumption resilient against Q3 virus wave The seventh COVID wave in Q3 has been the worst on record so far in terms of daily infections. Yet the Cabinet Office’s monthly estimate of private consumption for July and August was 0.6% above the Q2 average …
Recession begins and not because of the extra bank holiday About half of the 0.6% m/m fall in real GDP in September and half of the 0.2% q/q decline in Q3 as a whole was caused by the one-off reduction in the number of working days due to the extra bank …
Commercial property valuations began to stabilise in Q3, as a large rise in property yields helped offset a further rise in alternative asset yields. And with the reversal of the “mini-Budget” meaning 10-year gilt yields have now likely peaked, a …
10th November 2022
We think Malaysia’s GDP growth slowed sharply in Q3… (04.00 GMT) … and the UK economy contracted, marking the start of a recession (07.00 GMT) Consumer sentiment in the US probably remained low in early November (15.00 GMT) Key Market Themes US …
We doubt the recent underperformance of UK high-yield corporate bonds relative to those in the euro-zone will continue given the relative outlooks for monetary policy and economic growth. Corporate bond yields in developed markets (DMs), as measured by …
