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Households have a slightly larger savings buffer The upward revision to real GDP growth in Q3 and Q4 of last year suggests that high inflation took a slightly smaller toll on the economy than we previously thought. But with around two-thirds of the drag …
31st March 2023
Even though equity prices in the UK have fallen further than in the US and the euro-zone since the US bank SVB failed and the European bank Credit Swisse was taken over, the pound has strengthened from $1.20 to $1.23. That is probably partly because of …
30th March 2023
Table of Key Forecasts Global Overview – The strongest headwind for the global economy has shifted from an energy crisis and the related squeeze on real incomes to a potential banking crisis and associated drag on credit. Since banks are relatively …
China’s official PMIs are likely to show economic momentum fading in March (02.30 BST) We think euro-zone headline inflation fell in March, while core remained strong (10.00 BST) Real consumption in the US probably changed little in February (13.30 BST) …
Overview – There are encouraging signs that the energy crisis is receding, the worst of the downturn is passing and that inflation has peaked across the region, but this year will still be challenging. We expect below-consensus GDP growth in most …
Headline inflation tumbling, core peaking The big falls in headline inflation in Germany and Spain should provide some relief for struggling households in the coming months. And core inflation in Germany may now have passed its peak. However, with …
While households and businesses took further advantage of rising interest rates in February by moving money into bank accounts with higher rates, they are not withdrawing money from the overall banking system. We doubt this significantly changed after the …
Business surveys point to small expansion in Q1 The small decline in the EC’s economic sentiment indicator in March leaves it still pointing to an increase in GDP in Q1. Meanwhile, firms’ selling price expectations suggest that core inflation might be …
The partial reversal of the spike in mortgage rates following the “mini” budget has helped to stem the deterioration in housing market demand. Our measure of the average quoted mortgage rate has fallen from a peak of 5.7% in October to 4.7% in February, …
Net lending turns negative as investors hold back Net lending to property turned negative in February, as investors held back in the face of falling capital values. But the decline was small and even though the recent banking crisis will lead to some …
29th March 2023
Higher interest rates continue to hurt housing more than consumer credit February’s money and credit data suggest that higher interest rates were a further drag on lending in February, particularly in the housing market. That’s before the effects of the …
Mortgage lending still depressed despite slight recovery Reflecting the partial unwinding of the spike in mortgage rates following the “mini” budget, mortgage approvals rose to their highest level for three months in February. However, with mortgage rates …
Higher interest rates continue to hurt housing more than consumer credit February’s money and credit data release suggests that higher interest rates were a further drag on lending in February, particularly in the housing market. That’s before the recent …
While CPI inflation will fall from 10.4% to around 3.5% this year, we think a recession involving a peak-to-trough fall in real GDP of around 1.0% is needed to ensure that domestic price pressures weaken to levels consistent with the 2.0% inflation …
28th March 2023
Overview – The euro-zone economy is set to perform much worse than consensus forecasts suggest over the next two years, with a recession looking likely. That is mainly because monetary policy and bank lending conditions are tightening. We expect …
MNB to keep rates higher for longer as inflation risks persist Hungary’s central bank (MNB) left its benchmark base rate on hold today (at 13.00%) and it is looking increasingly likely that this rate will not be cut until Q4 at the earliest. The phasing …
We doubt that the banking sector crisis which has hit US regional banks and Credit Suisse will morph into a sustained or systemic problem for the euro-zone’s banks. However, there may well be further “idiosyncratic” problems and adverse sentiment towards …
We expect Hungary’s central bank to leave policy unchanged (13.00 BST) US Conference Board data may give an indication of any recent hit to sentiment (15.00 BST) Sign up here for tomorrow’s Drop-In on the risks around commercial real estate (16.00 BST) …
27th March 2023
The February money and credit data show that even before the recent pressure on European banks, net bank lending was extremely weak and consistent with the economy contracting sharply. February’s money and credit data, published this morning, pre-date the …
Resilience unlikely to last The fifth successive monthly increase in the Ifo Business Climate Index (BCI) in March suggests that Germany is still benefitting from falling energy prices and easing supply problems but has yet to feel the full effects of …
Resilience unlikely to last The fifth successive monthly increase in the Ifo Business Climate Index (BCI) in March suggests that Germany is still benefitting from falling energy prices and easing supply problems and has yet to feel the full effects of …
The US dollar had spent much of the week on the back foot amid a growing belief that banking sector issues might prove a largely US-specific problem. But that narrative, and price action, has (again) been turned on its head today as European banks …
24th March 2023
As we discussed in our “Drop In” webinar after this week’s Bank of England policy decision (see here ), the 25 basis points (bps) hike in interest rates, from 4.00% to 4.25%, could prove to be the end of the tightening cycle. But it is the data on the …
Click here to read the full report Overview – With valuations still highly stretched and rent growth likely to slow as the region falls into recession, we think capital values will fall further in 2023. While the 4.5% decline forecast at the all-property …
A few key points on Europe’s banks We discussed the recent turmoil in the banking sector in a Drop-in this week. (See here , or you can listen to a shorter version on our podcast here .) The big picture is that there are reasons to be cautiously …
Bank failures have had only a modest impact on UK banks’ wholesale funding costs to date, reflecting an assessment that lenders are in good health which we think seems fair. Greater investor scrutiny could still lead to more caution in mortgage lending, …
Fading domestic price pressures could mean yesterday’s rate hike is the last The flash PMIs suggest the economy’s strong start to the year was sustained in March. But with the full drag from high interest rates yet to be felt, our hunch is still that …
Strong PMIs point to further ECB hikes The strong batch of euro-zone flash PMIs for March suggests that the economy expanded in Q1 and that both employment conditions and price pressures remained very strong. That adds to the reasons to think that, as …
Activity remains resilient, despite global banking issues The flash PMIs suggest the economy’s strong start to the year was sustained in March. But with the full drag from high interest rates yet to be felt, our hunch is still that the economy will enter …
Strong PMIs point to further ECB hikes The strong batch of euro-zone flash PMIs for March means it is now all but certain that the economy expanded in Q1 while both employment conditions and price pressures remained very strong. With the banking turmoil …
Too soon to conclude February’s rebound will be sustained The further rebound in retail sales volumes in February suggests the recent resilience in activity hasn’t yet faded. But we doubt this will last as the drag on activity from higher interest rates …
Too soon to conclude February’s rebound will be sustained The 1.2% m/m rise in retail sales volumes in February was much better than the consensus forecast of a +0.2% m/m rise (CE +0.5% m/m). That suggests the recent resilience in activity hasn’t yet …
The turmoil in the global banking sector has not spread to Emerging Europe, but the focus is back on the health of the region’s banks given the not-so-distant memory of the 2008/09 banking crises that swept across the region. The good news is that banks …
23rd March 2023
The Bank of England followed the Fed’s example by forging ahead today with a 25 basis point (bps) interest rate hike, taking rates from 4.00% to 4.25%. This could prove to be the last hike of the tightening cycle. But if wage growth and CPI services …
A degree of calm has returned to markets, but investors remain nervous about where the next blow-up could occur – and attention is increasingly focused on commercial real estate. But are the concerns about real estate justified and – if so – where in the …
Bank of England may not yet be finished in its battle with inflation The Bank of England followed the US Fed’s example by forging ahead today with a 25bps interest rate hike and signalling that it may not yet be finished in its battle with inflation. As a …
CBRT keeps rates on hold after one-off cut in February Turkey’s central bank (CBRT) left its key policy rate on hold at 8.50% today as policymakers kept monetary conditions loose to support activity after the earthquakes in February. Interest rates are …
Turkey’s banking sector has been one of the weak links in the EM world in recent years due to its very high external debt burden. The good news is that banks have paid down these external debts and built up their FX liquidity buffers since 2018. This has …
22nd March 2023
The UK commercial real estate (CRE) debt market seems to be in a better position than the US, where troubled regional banks were the main providers of finance. That said, credit conditions are also set to tighten in the UK which will make refinancing more …
The Help to Buy: Equity Loan scheme was designed to counter an alarming drop in housebuilding and home ownership among young adults. It succeeded to some extent on both fronts, so the loss of the policy when the housing market is in the midst of a …
Reacceleration in inflation supports the case for another rate hike The reacceleration in CPI inflation in February may be enough to tilt the Bank of England towards raising interest rates from 4.00% to 4.25% tomorrow despite the recent turmoil in the …
Reacceleration in inflation may force 25bps rate hike The reacceleration in overall CPI inflation from 10.1% in January to 10.4% in February (consensus 9.9%, BoE 10.2%) and core inflation from 5.8% to 6.2% (consensus 5.7%) may be enough to tilt the Bank …
Spillovers from the global banking crisis to EMs appear limited so far. Encouragingly, too, most EM banks appear to be well placed to weather a period of rising non-performing loans resulting from weaker growth and higher interest rates. That said, there …
21st March 2023
Pre-election tax cuts in prospect, but risks to the fiscal outlook growing Despite February’s worse-than-expected public finances figures, we still think the Chancellor may have more headroom to cut taxes/raise spending later this year. But the big risk …
Pre-election tax cuts in prospect, but risks to the fiscal outlook growing The news on the public finances may have raised the Chancellor’s hopes that he will be able to announce a pre-election giveaway later this year. But the big risk is that a further …
Clients can access all our latest research on the banking sector crisis here … … and catch-up on today’s Drop-in on the topic here Canada’s CPI inflation probably fell to 5.4% in February, from 5.9% in January (12.30 GMT) Key Market Themes Financial …
20th March 2023
Markets remain in a febrile state despite the weekend deal for UBS to buy Credit Suisse and a joint central bank statement pledge to beef up dollar liquidity support. What will it take to restore confidence and end this crisis? Economists from across our …
Credit Suisse solution raises new questions The uncertainty over the long-term viability of Credit Suisse ended over the weekend when it was acquired by UBS – the solution which at face value offers the best chance of re-establishing stability in the …
We expect the Fed to press ahead with a 25bp hike next week (Wed.) The Bank of England and Norges Bank will probably also hike by 25bp (Thu.) But we think the SNB may raise rates by 50bp (Thu.) Key Market Themes Despite a better day for financial …
17th March 2023
