In a week that started with Iran’s drone and missile attack on Israel and which ended with Israel’s retaliatory strike on Iran , it is somewhat surprising that the price of Brent crude fell by over 3% w/w. It would be easy just to explain the move by …
19th April 2024
GDP breakdown points to stronger services activity The better-than-expected Q1 GDP figures released earlier this week added to wider evidence that the economy has regained some momentum recently. The detailed sectoral breakdown, published a day after the …
Currency falls another headache for central banks The reassessment of interest rate expectations in the US combined with tensions in the Middle East has put substantial downward pressure on EM currencies this week, with some in Latin America hit …
Budget 2024 made a bit of a splash thanks to the unexpected changes to capital gains taxes, but we do not think the new net spending measures were large enough to change the outlook for GDP growth or interest rates this year. The encouraging March CPI …
Tensions increase, but hopes for de-escalation Tensions between Israel and Iran ratcheted up this week as both sides launched military strikes at one another, raising concern about a broader regional conflict. (Read our research here .) Following Iran’s …
Movements in the exchange rate tend to have only a small impact on euro-zone inflation. So while the euro might weaken if monetary policy in the euro-zone and US were to diverge, we think it would take a big move in the exchange rate to have a significant …
Note: We’ll be discussing the outlook for monetary policy in the euro-zone in a Drop-In on Thursday, 25th April. Register here for the 20-minute online briefing. The financial news this week has been dominated by the potential impact of the Middle …
Worries about the currency Bank Indonesia is the only central bank in emerging Asia that has a mandate to ensure currency stability. It surprised markets (and us) when it raised interest rates to support the rupiah at its October meeting. With the …
Higher Treasury yields, a resilient US economy, and relatively low valuations are three reasons why we now think that the future for US banks in general is a bit brighter. The share prices of banks in the S&P 500 have underperformed the overall index …
In the previous Weekly we said “the risks are tilted towards inflation proving sticker and rate cuts happening a bit later”. This week’s global and domestic events have left our forecast that interest rates will first be cut from 5.25% in June and will …
BJP on course for another big win The biggest (and most expensive) vote in history commenced today as India started voting in its general election. Almost a billion people are eligible so given the daunting logistical challenge, voting will take place …
Its peers may be looking less likely to do so, but we think the European Central Bank is still on track to start cutting rates at its June meeting. While the timing of that first cut may now be baked in, we don’t think the market is correctly pricing just …
Reports suggest that Israel has fired missiles into Iran in response to Iran’s strike on Israel last weekend. Details remain unclear, but the key questions for markets relate to the scale of the attack and the damage caused, and the likelihood of …
This page has been updated with additional analysis since first publication . Retail outlook still bright despite sales stalling in March Although retail sales volumes remaining unchanged in March was worse than expected (consensus forecast +0.3% m/m, CE …
The economy rebounded during the first quarter but we continue to expect the economy to grow below trend this year as a whole. Elevated interest rates, a cooling labour market, soft foreign demand and tighter fiscal policy are all likely to curtail …
We’ll be discussing what a stronger-for-longer dollar means for the Japanese policy outlook and the yen in a 20-minute online briefing at 9am BST/4pm SGT on 26th April . (Register here .) Yen falling to fresh low but no intervention yet The yen …
RBNZ to watch and wait for longer On Wednesday we learnt that inflation in New Zealand moderated from 4.7% in Q4 to 4.0% in Q1. At first glance, that outturn was only a touch stronger than the 3.8% the RBNZ had predicted. However, the details of the CPI …
Inflation should receive a boost in mid-year Inflation moderated slightly in March, in line with the consensus and our forecasts. If inflation continues to move in line with the BoJ’s projections, further rate hikes may be on the cards this year. Headline …
Despite the ongoing surge in long-term government bond yields, the US yield curve remains inverted. As such, it is worth revisiting what the implications are for financial markets, and how this episode differs (or not) from previous curve inversions. As …
18th April 2024
Even if mortgage rates fall to 6.5% this year as we expect, homeowners will still be discouraged from listing their home, ensuring supply remains tight. At the same time, mortgaged buyer demand should pick-up as affordability improves. That will drive …
Investors are no longer pricing in a 50bp interest rate cut at the Brazilian central bank meeting next month, despite the forward guidance at the March meeting signalling such a move. While we think it’s too early to throw in the towel on a 50bp cut, a …
Gulf find itself in a bind if conflict escalates The ratcheting up of tensions in the Middle East between Iran and Israel over the past couple of weeks has raised concerns about a broader regional conflict. For now, though, it seems unlikely that the Gulf …
The continued weakness in the German economy that we expect over the rest of this decade presents a challenge to the export-orientated economies of Central and Eastern Europe (CEE). While GDP growth is likely to be slower in CEE over the coming years than …
Recent increases in natural gas prices in Europe have predictably been mirrored in the EU carbon price, which has risen from a 31-month low of €52 per tonne in February to €71 at the time of writing. The rise in European natural gas prices has been driven …
The recent upturn in activity and employment growth and the resilience of core inflation suggest that the Fed won't start cutting interest rates until later this year. But although it is taking a little longer than expected, we still believe that core …
Existing home sales drop back due to higher mortgage rates The fall in existing home sales in March was triggered by mortgage rates climbing back above 7% the month before. Even so, transactions remain above the trough at the end of last year, consistent …
The risk premia on Turkish assets are now low relative to the past decade or so. We think that will remain the case over the coming quarters, given the positive global risk-on attitude and the ongoing shift to traditional macroeconomic policy. Even so, …
On the face of it, core disinflation seems to have stalled or even reversed in the US but not in Europe, suggesting that Fed cuts will come much later than those by the ECB and BoE. However, there are definitional issues at play that exaggerate the recent …
We forecast that bond yields will fall back in most developed markets (DMs) over the next year or so, as central banks generally embark on bigger easing cycles than investors currently expect. But given our view that the Federal Reserve faces more hurdles …
We think the headwinds driving the depreciation of the Chilean peso against the US dollar have largely run their course. We expect the Chilean peso to recover some ground by the end of the year. The Chilean peso has underperformed almost all other major …
Aggregate EM GDP growth will enter a slower phase over the coming quarters. But the headline figure masks large variation in prospects at a country level, with many EMs experiencing a reversal of last year’s fortunes. While we expect the EM monetary …
The first Fed rate cut of this cycle is now looking like a second-half event and EM investors – and policymakers – are having to adjust to the delay. EM currencies have weakened as fears about policy constraints have spread, but how vulnerable are these …
Germany’s manufacturing sector has been in relative decline since around 2017. We think it will continue to shrink in the coming years and expect productivity growth in the sector to remain relatively low by past standards. As a result, the sector’s …
This page has been updated with additional analysis since first publication. Still-tight labour market gives RBA reason to be cautious The modest rise in unemployment last month doesn’t change the bigger picture that Australia’s labour market is firing on …
Today’s UK CPI release has not made a sustained impact on investors’ expectations over the path of Bank Rate, and the market pricing implies that investors are still discounting fewer cuts from the Bank of England (BoE) than we are. This is why we expect …
17th April 2024
The latest polls ahead of Mexico’s election on 2 nd June suggest that Claudia Sheinbaum, protégée of incumbent President Andrés Manuel López Obrador (Amlo), is likely to become the country’s next leader. She’s widely expected to continue with Amlo’s …
With that March US CPI print sinking hopes for a first half Fed rate cut, even as other DM central banks prepare to start easing, dollar strength looks set to continue for now. What will this mean for China and Japan, whose authorities have already been …
South Africa’s latest hard activity data provided some encouraging signs that the economy may be turning the corner even if it comes too late to help the ANC’s hopes of keeping its majority in parliament after May’s election. With electricity outages …
Saudi Arabia has yet to be able to raise foreign direct investment towards its Vision 2030 goals, prompting a turn to the Public Investment Fund (PIF) to prop up investment spending. Unless the government makes major strides to improve the local business …
We think it is most likely that future governments bring down Belgium’s budget deficit sufficiently to put its debt on a sustainable trajectory. However, the risks are that the deficit is higher than we forecast because of Belgium’s divided political …
The detailed breakdown of March’s euro-zone HICP data, released this morning, show that the early timing of Easter boosted services inflation by 0.1ppts. This effect was smaller than in previous years. Nevertheless, excluding the tourism-related sectors …
The recent bout of EM currency weakness may prompt (further) FX intervention, particularly in Asia, to stem currency volatility. Turkey’s central bank is likely to hike rates at its meeting next week and a hike is also now on the table at the Bank …
This page has been updated with additional analysis since first publication. Inflation fall will not sway the SARB into interest rate cuts The larger-than-expected fall in South Africa’s headline inflation rate, to 5.3% y/y, in March will not be enough to …
This page has been updated with additional analysis since first publication. Upside surprise, but big drop to below 2% still coming in April The smaller-than-expected fall in CPI inflation from 3.4% in February to 3.2% in March (BoE and consensus 3.1%, CE …
This page has been updated with additional analysis since first publication. Net exports will be a drag on Q1 GDP While the trade deficit increased in March, net goods trade should contribute positively to Q1 GDP figures. But net services should have …
This page has been updated with additional analysis since first publication. Upside inflation surprise raises “higher for longer” risks Although the Q1 CPI print was a touch stronger than we had predicted, we still expect inflation to return to the RBNZ’s …
Although Finance Minister Chrystia Freeland stuck to her previous pledge to keep the budget deficit below $40bn in the new fiscal year, she nonetheless spent the small windfall afforded to the government thanks to stronger-than-expected revenue growth. …
16th April 2024
Continued resilience in the US economy looks set to delay the Fed easing cycle until (at least) the second half of this year, so we now think the greenback will stay strong against most currencies over the next couple of quarters. We now forecast the DXY …
The latest US CPI data may have dashed hopes of interest rate cuts as early as June, but looser monetary policy is still firmly on the cards late this year and over the course of next year. Lower rates should be positive for commodity prices but, …
