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Emmanuel Macron’s decision to call a snap legislative election has triggered turmoil in French politics that is spilling into its financial markets. But what’s driving market panic? Is France heading for a ‘Liz Truss’-style bond market meltdown? And how …
17th June 2024
In the latest episode of The Weekly Briefing from Capital Economics, Group Chief Economist Neil Shearing talks about what’s happening in France and what that means for the bond market. He also assesses the Fed’s June meeting and previews what the Bank of …
14th June 2024
Inflation rises further, another rate hike likely in July The further rise in Russian in inflation to 8.3% y/y in May was stronger than expected, and means that an interest rate hike at the central bank’s next meeting in July now looks all but certain. …
French government bonds and equities have sold off this week, and the euro has weakened. A lot of bad news now seems priced in, but we suspect the discount on French assets is here to stay. Investors have now had some time to digest French President …
The focus in oil markets this week was on the long term with the IEA predicting that oil demand will peak in 2029 while OPEC argued there is no peak in sight. In any case, when the peak occurs is only part of the picture. In its annual oil report, …
EU announces new tariffs on China The immediate macroeconomic impact of the EU’s new tariffs on EV imports from China announced this week are likely to be fairly small. As we noted here , the EU imported 440,000 EVs (€9bn) from China over the past year. …
The 10-year yield spread between government bonds in France and Germany has risen above 80bp, its highest since the euro-zone debt crisis. Should the far-right National Rally be in a position to form a government after the upcoming elections, we suspect a …
Higher levels of housebuilding is a prize that both Labour and the Conservatives seek, evidenced by the identical target of building 300,000 new homes a year published in their manifestos this week. (You can see all of our election analysis here , and …
The focus this week has been on the fallout of the European elections in France because there is a real chance that the parliamentary elections, to be held on 30 th June and 7 th July, will lead to a government led by the far-right Rassemblement National …
Will the outcome of the UK general election move the dial on the UK economic outlook? How much would a Labour government deviate from Conservative economic policy? What does a change of government mean for the UK’s financial and housing markets? Our UK …
This page has been updated since publication with additional analysis. Rise in core inflation likely to be temporary The Riksbank’s target measure of inflation, CPIF, remained at 2.3% in May, but the core measure (CPIF excluding energy) rose slightly for …
BoE watching and waiting for more evidence that inflation will settle at the 2% target But a summer rate cut is more likely than investors expect We think rates will be cut to 3.00% next year, below current market pricing of 4.00% Far more interesting …
13th June 2024
The latest Crane Survey reported that a record high 16.4m sq. ft. of London office space was under construction in Q1. That in part reflects developers delaying projects until the demand outlook becomes more certain. But a decent level of new starts also …
While what’s in and what’s out of the election manifestos is informative, the bigger issue is whether the next government delivers or deviates from its manifesto. This Update sketches out three plausible scenarios and the possible implications for the …
The SNB is likely to keep rates on hold at 1.5% at its meeting next week as inflation in Q2 so far has been in line with the its forecast in March. Moreover, the latest data on wage growth were much stronger than ahead of the March meeting, which we think …
Norges Bank will leave its policy rate at 4.5% next week and reiterate that rate cuts are some way off. We think it will wait until December to start loosening monetary policy. As a reminder, the press release following Norges Bank’s meeting in May said …
NB. Our new and improved interactive Europe Commercial Property dashboard, home to key macro and commercial real estate forecasts, can be found here . Overview – The price correction showed signs of stabilisation in early 2024, but we think further, …
We doubt the outcome of the UK’s general election will have a big impact on UK equities in general. Nonetheless, we still expect them to continue to underperform US equities. We don’t think the Labour Party’s return to power – which the polls suggest is …
This page has been updated with additional analysis since first publication. Output fell and outlook for industry is poor The 0.1% m/m decrease in euro-zone industrial production in April was slightly weaker than the published consensus forecast of 0.2% …
With economic activity strengthening across Emerging Europe and inflationary pressures resurfacing in several countries, we think that the scope for monetary easing in the region this year is relatively narrow. Our interest rate forecasts in most …
Faltering demand and rising supply mean prices will slip back The May RICS survey was the weakest so far this year, as new demand faltered and sales slowed. With the quantity of homes coming onto the market increasing at the same time, prices are likely …
Although the EUR/USD exchange rate is not far above multi-decade lows, we think structural factors mean that the euro is close to “fair value” relative to the US dollar and most other major currencies. So we doubt the euro will rebound against the dollar …
12th June 2024
The current fiscal framework is not perfect and could be reformed to improve investor confidence in the management of the public finances, tilt the composition of spending towards investment and reduce political uncertainty. However, the importance of the …
EU protecting domestic producers but not ending Chinese EV imports Reports that the European Commission will “provisionally apply” additional duties of up to 25% on imports of EVs from China from July, on top of the 10% tariff already in place, are in …
This page has been updated with additional analysis since first publication. Despite stagnating in April, economy will be a tailwind for the next govt The stagnation in GDP in April (consensus 0.0%, CE -0.1%) doesn’t mean the economic recovery has been …
France’s National Rally has advocated policies that would increase the budget deficit and provoke clashes with the EU. During the election campaign, it will probably moderate these views, but the chance of France reducing its deficit to 3% of GDP by 2027, …
11th June 2024
Sluggish economic growth in the euro-zone’s trading partners and a deterioration in competitiveness caused an extremely rare absolute decline in euro-zone export volumes last year. Poor competitiveness will remain a perennial problem, but global growth …
The granular data on mortgage lending in Q1 contained some signs of relief following the dip in mortgage rates at the end of last year. But given that decline in rates has since reversed, we don’t think it signals a further improvement in activity to …
This page has been updated with additional analysis since first publication. S ticky wage growth a lingering concern for the BoE The stickiness of wage growth in April will be a lingering concern for the Bank of England. But with employment falling …
The latest data has been a bit stronger than we had anticipated and suggests that the recovery in euro-zone activity may continue at a moderate pace. The labour market remains tight, with unemployment falling to a fresh record low and wage growth picking …
10th June 2024
French President Emmanuel Macron’s decision to call for snap elections has triggered a negative reaction in markets, not only in France but also in the rest of the EU. Even though the far-right National Rally has abandoned its most extreme economic …
The shock results of Europe’s parliament elections have roiled markets as investors respond harshly to news of President Macron’s surprise decision to dissolve France’s National Assembly and hold early elections. What will Macron’s gamble mean for the …
Macron’s gamble adds to risks for public finances Support for the centrists has held up quite well in European elections but this was overshadowed by the jump in votes for the far-right in France and President Macron’s surprise decision to dissolve …
In the coming years, we expect Europe to raise barriers to trade and investment with China but to do so in a targeted and gradual manner. If so, there would be big implications for some sectors, including electric vehicles and renewable technologies, but …
7th June 2024
This week both the Conservative and Labour Party have been quick to tell us about ‘financial black holes’ in their opponent’s tax and spending plans. But there are two big things neither party is telling us. First, sticking to their fiscal rules means …
CBRT reserves on the rise The rebound in Turkey’s FX reserves in the past two months, alongside the sharp reduction in the central bank’s FX swap programme, has taken the CBRT’s net FX position into positive territory for the first time in four years. …
Data released this week confirmed that the euro-zone economy is out of recession, but that domestic demand is still quite weak. The second estimate of Q1 GDP showed that the economy expanded by 0.3% q/q. But the breakdown revealed that was fully explained …
CBR sounds hawkish, rate hike becoming more likely Russia’s central bank (CBR) left its key policy rate on hold at 16.00% but delivered a much more hawkish message at today’s meeting. Inflation concerns are likely to persist for some time and we think the …
Confirmation house prices are stagnant The slight decline in the Halifax house price index in May confirmed that the increase in mortgage rates since the start of the year has caused house prices to stall. Mortgage rates have continued to edge up, so …
While euro-zone inflation data has recently surprised to the upside, which was reflected in the hawkish tone of today’s ECB meeting , we still think the 10-year Bund yield will fall faster than the 10-year Treasury yield by end-2024. Although today’s 25bp …
6th June 2024
The ECB began its easing cycle today, as expected, but the accompanying guidance and forecasts suggest that it will proceed cautiously. We now think the Bank will cut interest rates by only a further 50bp before the end of the year, with the next cut …
Indications that take-up stabilised across many markets in Q1 were encouraging. However, looking ahead we think the prospects for occupier demand are better in southern European markets. As we recently highlighted , there were tentative signs that Europe …
Overview – Activity strengthened across Emerging Europe in Q1 and we expect this to be sustained over the coming quarters, with GDP growth in most economies exceeding consensus expectations in 2024. This is likely to be accompanied by renewed inflation …
Just as fixed mortgage rates have shielded homeowners from rising interest rates, they will prevent households’ interest costs from falling rapidly when interest rates are cut. While borrowers on tracker and two-year fixed rate deals will soon see their …
This page has been updated with additional analysis since first publication. Euro-zone sales ticked down but past the worst Retail sales ticked down in April we expect them to rise gradually from here. The 0.5% m/m decline in retail sales in April was a …
Construction activity picks up in both housing and commercial sectors The headline CIPS construction PMI rose to a two-year high of 54.7 in May. Both the commercial and housing balances improved, with the latter rising above 50 for the first time since …
Activity softens slightly, but still running hot Russia’s economy appears to have had a slightly softer start to Q2, with industrial production and retail sales growth both slowing in April. Still, the latest indicators for May have remained strong and …
5th June 2024
Whoever wins the general election on 4 th July will have three main choices when it comes to spending and taxes. First, the new government could change the fiscal rules to give itself more fiscal space. Second, it could keep the current fiscal rules and …
Rates on hold until 2025 Poland’s central bank (NBP) left its policy rate on hold at 5.75% today and policymakers are likely to maintain fairly hawkish communications as inflation rebounds in the second half of the year. We don’t expect the easing cycle …
