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The Russian central bank (CBR) delivered a 150bp interest rate cut to 9.50% today as its focus continued to shift away from inflation risks towards supporting the economy. We think further reductions are likely to be more gradual, with rates ending this …
10th June 2022
Farewell Stockholm, hello Basel It was announced this week that Cecilia Skingsley will up sticks from Stockholm to Basel in August and leave her role as First Deputy Governor of the Riksbank to head up the BIS’s Innovation Hub. It’s fair to say that Ms …
The ECB announcement yesterday that it intended to raise rates in July came as little surprise given the communications from ECB officials over the past few weeks or so. More interesting was the ECB’s strong suggestion that after the planned 25bp rate …
As former Prime Minister Harold Wilson once said, “a week is a long time in politics”. At the start of the week the current Prime Minister, Boris Johnson, was fighting for his political life with 41% of his own MPs voting to remove him as leader of the …
Case for a step-up in the pace of rate hikes in June is now overwhelming The stronger-than-expected increase in Norway’s core inflation rate in May lends support to our forecast that the Norges Bank will step up the pace of tightening later this month. A …
China’s inflation data may add to evidence that lockdowns were disinflationary (02.30 BST) High food and energy prices probably kept inflation above 8% in the US … (13.30 BST) … and elevated inflation probably weighed on consumer confidence in early June …
9th June 2022
Softer demand for steel in Europe has dragged prices lower recently, despite production in the region being constrained by high production costs. We expect prices to fall a little further to €900 per tonne by end-year from around €950 currently . The war …
The latest polls for this month’s legislative elections in France raise the possibility that Macron’s party and allies may not win a majority. But even so, support from the centre-right might avoid a lame-duck presidency, allowing Macron to push through …
Today’s policy statement and press conference sets the stage for the ECB to raise interest rates by 75bp by September and we expect that to be followed by two more hikes this year. The Bank’s failure to provide any more details about its backstop plans …
The markets and consensus are underestimating the chances of a 50bps rate hike It’s almost 50-50 between a 50bps and 25bps hike, but we’re going for 50bps Either way, recent events support our view that interest rates will rise to 3.00% next year The …
Higher alternative asset yields drove a sharp deterioration in European property valuations in Q1. (See Chart 1.) Valuation scores declined across all sectors, though retail remained in fair value territory. With the surge in bond yields continuing into …
The latest London Crane Survey showed office space under construction rose marginally, but will increase further as supply rises. This supports our view that increased supply over the next two years will keep vacancy rates high. As a result, we expect …
Signs that inflation has already peaked The sharp fall in Russian inflation in May to 17.1% y/y suggests that inflation may have already peaked and price pressures are likely to ease further in the coming months. This will give the central bank room to …
8th June 2022
Real economic growth is slowing rather than collapsing in the face of the twin drags of higher inflation and rising interest rates. The Chancellor’s latest fiscal handout will help support GDP in the second half of the year. And with the Prime Minister …
The Turkish lira has continued to slide and the current backdrop is eerily similar to that which preceded previous currency crises. Sharp and disorderly falls in the lira over the coming weeks are now a real risk. The lira slipped beyond 17/$ this morning …
Construction sentiment worsens as economic headwinds mount The second consecutive fall in the construction PMI in May points to a sustained slowdown in development activity. And with the new orders balance easing and optimism of future demand declining, a …
Economy likely to undershoot expectations The upward revision to euro-zone GDP in Q1 was in large part down to the huge increase in Ireland, where the GDP data are notoriously unreliable. So the data aren’t as good as they look. And we still think that …
German industry to contract in Q2 April’s increase in industrial output reversed only a fraction of the decline in March and shows that high energy prices, the Ukraine war and ongoing supply shortages are still having a major impact. We expect industrial …
With some important exceptions, including the German manufacturing sector, economic activity seems to have held up a little better than we had feared so far in Q2. We don’t think this will last. The recent strength has been helped by the re-opening of …
7th June 2022
We forecast the SNB to largely shadow ECB rate hikes over the next 18 months or so, albeit allowing the interest rate differential with the euro-zone to widen from 25bps at present to 50bps by end-2022. But the balance of risks is skewed towards the Bank …
Sanctions take their toll as activity falls sharply in April The April activity data for Russia released today show that the imposition of Western sanctions has caused a sharp fall in oil and gas production, a plunge in motor vehicles output and resulted …
1st June 2022
The S&P Global EM Manufacturing PMI for May suggests that the easing of virus-related disruptions in China supported a small rebound in EM manufacturing last month, but the sector remains very weak. And the effects of the war in Ukraine are taking an …
ECB will leave rates unchanged next week but raise rates by 50bp in July. Bank staff will revise inflation forecasts up , growth forecasts down . ECB to keep us (and itself!) guessing about design of anti-fragmentation tool. Members of the ECB Governing …
Enough has been said elsewhere about how the leap in euro-zone inflation in May is making it difficult for the ECB, which will need to explain next week why policy rates are still negative. So in this Weekly we will turn our attention to how inflation is …
The unexpectedly strong rise in unsecured borrowing in April adds to the evidence that consumer spending hasn’t collapsed, despite the plunge in consumer confidence and fall in households’ real incomes. (See Chart 1.) Chart 1: Consumer Confidence & …
EU oil embargo not a disaster for Russia After weeks of intense negotiation, the EU eventually agreed to impose an embargo on seaborne imports of Russian crude and petroleum products that will likely result in a 90% fall in Russian oil exports to the EU …
One is not amused by King Harald V’s luck With the UK gripped by Jubilee fever, it is worth pointing out that Sweden, Norway, and Denmark are also constitutional monarchies whose current rulers have been on the throne for decades. It is hard to compare …
A bright spot in an otherwise gloomy landscape The euro-zone unemployment rate remained at a record low in April and the latest business surveys suggest that employment will continue to increase at a decent pace. With the labour market remaining tight, …
Weak external demand and war in Ukraine take their toll Manufacturing PMIs for May showed that weaker external demand weighed on export orders in Emerging Europe, and that spillovers from the war in Ukraine hit output. There were some signs of improvement …
More evidence that house price increases have peaked There was another slowdown in the annual rate of house price inflation in May according to the Nationwide. That was in line with our expectation of sustained slowdown through the rest of the year, …
The EU’s sixth round of sanctions on Russia marks yet another defining moment in the West’s detachment from Russia’s energy trade. The sanctions were widely telegraphed in advance, though, so for now we still forecast that crude oil prices will remain …
31st May 2022
GDP across Central Europe expanded strongly in Q1 and the latest figures for March and April suggest that activity has remained resilient since the war in Ukraine started. Russia’s economy has not (yet) fallen off a cliff as had been expected. Industry in …
Both our view and that of the IPF Consensus is that prime office rental growth will slow as hybrid working shifts take their toll. However, we also think it is likely that a quality gap will emerge, though the evidence of this is not conclusive so far. …
Consumers funding spending through borrowing, not savings The solid rise in unsecured borrowing in April suggests that households have turned to credit to support their spending as the cost of living squeeze has intensified. But consumers do not yet …
Net lending defied economic headwinds in April Net lending to property rose sharply in April, after three consecutive months of easing. But the latest jump is most likely a once-off as we expect that credit demand will be dented by rising interest rates …
Approvals drop back to pre-COVID-19 levels in April The drop in mortgage approvals in April provided early evidence that interest rate increases are starting to hurt activity. As we expect the rises in both policy and mortgage rates to continue apace over …
Further jump in inflation clinches case for prompt ECB action With headline and core inflation rising more than expected yet again, the case for exiting from negative interest rates promptly is now irrefutable. The ECB looks sure to confirm next week that …
Solid Q1 but activity will have softened in Q2 The stronger-than-expected increase in Swiss GDP in Q1 provides a solid base for year-on-year growth rates throughout 2022. But with surveys heading south, and signs of stagnation in the euro-zone in Q2, we …
Resilient Q1, but economy to struggle over rest of 2022 Turkey’s economy performed better than expected in Q1, with GDP rising by 1.2% q/q, as the boost to net trade from the lira’s collapse late last year more than offset the blow to household spending …
Surging inflation boosts case for rapid rate normalisation German and Spanish inflation data for May provide more ammunition for those who will argue at next week’s monetary policy meeting that the ECB should exit negative interest rates promptly, rather …
30th May 2022
Sentiment a mixed bag in May The EC’s Economic Sentiment Indicators for Central and Eastern Europe were a mixed bag in May, but there were some encouraging signs that industrial sentiment has started to improve and that price pressures may be nearing a …
Sentiment still depressed The EC Economic Sentiment Indicator for May was almost unchanged from April, well below its pre-Ukraine war level and consistent with economic activity stagnating in Q2. The survey also suggests that inflationary pressures remain …
Russia and default (yes, we’ve been here before!) A Russian sovereign default moved a step closer this week after the US government decided not to extend a waiver that allowed US investors to receive debt payments from Russia’s government. We looked at …
27th May 2022
Strong Q1 performance pushes 2022 forecasts higher The latest IPF Consensus Survey indicates that the outlook for this year is stronger than expected three months ago, though after 2022 forecasts were more pessimistic. Our view remains more downbeat than …
There are some question marks over quite how big the fiscal stimulus announced by the Chancellor yesterday proves to be. Much depends on whether the 25% levy on the profits of oil/gas producers lasts beyond the next year, which Sunak said would happen if …
Nordics to follow ECB (following the Fed) The change to our ECB forecast this week (see here ) has big implications for Scandinavian central banks so we are now formally changing our projections for the Riksbank, Norges Bank and Nationalbank. (See Key …
Contraction in Q2? The euro-zone PMI survey for May, published this week, suggested that the economy may fare a little better in Q2 than we had assumed. Indeed, the Composite index remained well above the 50 “no change” mark, leaving it consistent with …
The ECB’s guidance that it can use PEPP reinvestments to contain bond spreads has a few big limitations. If the forthcoming interest rate hikes cause spreads to blow out, the ECB will either need to change the rules governing its reinvestments or, more …
26th May 2022
The extra financial support for households announced by the Chancellor today will help millions of households cope better with the cost of living crisis. But it won’t relieve all the pain and may mean the Bank of England has to pull the interest rate …
The risks of a recession in the euro-zone have risen. While we think a contraction will be narrowly avoided, this will remain a concern for property investors already facing the prospect of higher yields in the near term. Our recent European Economics …
