The outlook for the UK economy is unlikely to be very different depending on which of the possible combinations of UK Prime Ministers and US Presidents this year’s elections deliver. Even so, there may be some nuances. This Update establishes a framework …
26th February 2024
We estimate that in the near-term, the drag on Japan’s exports resulting from of a universal 10% US import tariff could be nearly offset by Japan gaining market share at the expense of China in response to a much higher US tariff on Chinese imports. …
Output falls slightly but doesn’t signal a downward trend The year-on-year contraction in global steel production in January masks a sizeable monthly increase in output in China and India. Production in both countries should grow further over the next few …
23rd February 2024
The fact buyers are using lower mortgage rates to borrow more, rather than spend less on repayments, is a major challenge to the view house price growth will be weak in the years ahead. If there has been a permanent increase in the amount households are …
Februarys’ flash PMI surveys suggest that economic activity improved in Europe at the start of this year. But services prices pressures remained elevated, especially in the UK and euro-zone, meaning that the ECB and Bank of England won’t be in a rush to …
22nd February 2024
The stalling in services disinflation in recent months is largely due to technical factors and one-offs. If services prices continue to increase at their recent pace in month-on-month terms, the year-on-year rate will fall a little further in the coming …
Carbon price not out of the woods yet …
The Bank of Korea left its policy rate on hold today (at 3.5%) and attempted to push back against expectations for an early rate cut. However, with inflation likely to be back to target soon and domestic demand struggling, we expect easing to begin in …
The Bank of Japan has succeeded in creating tight labour market conditions through ultra-loose monetary policy and is now reaping the benefits in the form of stronger wage growth. The upshot is that we expect the Bank to end negative interest rates at its …
Almost all major emerging market (EM) currencies have fallen against the US dollar so far this year, and we think they will remain under pressure until interest rate expectations in the US shift lower again. EM currencies have been no exception to the …
21st February 2024
The fiscal restraint shown by South Africa’s finance minister in today’s Budget was received positively in local financial markets, but the reality is that the government will struggle to meet its goals (indeed, it’s already doing so). And pressure on the …
The S&P Global PMI surveys have not been fully reliable guides to activity in major advanced economies over the past few years. But their relationship with GDP outside the US is still fairly strong and the detail in the surveys offers useful information …
Unlike most bubbles, this one hasn’t been accompanied, at least so far, by obvious signs of high and rising leverage. On the other hand, the share of funds invested in ‘passive’ products is now much higher than in prior bubbles. This Update considers how …
20th February 2024
EM sovereigns have issued a record amount of FX debt at the start of this year, capitalising on a window created by the decline in US Treasury yields since October. The issuance has been concentrated among highly rated sovereigns and borrowing does not …
Nigeria saw sluggish growth over the second half of last year, and the latest falls in the naira mean inflation is set to rise even further over the coming months, which should prompt the central bank to finally spring to action with large interest rate …
Headline inflation in Brazil has declined in recent months, but a deeper dig into the data shows that underlying price pressures are starting to build again. Although another 50bp cut in the Selic rate at the next central bank meeting in March is nailed …
After a couple of years in the doldrums, property construction in Korea is rebounding. The recovery in the sector should provide an important prop to economic growth this year. There are encouraging signs that the worst is over for Korea’s property …
Production growth to remain subdued in 2024 Global aluminium production was unchanged in January compared to December. This reinforces our view that production growth will soften this year. According to the International Aluminium Institute, global …
The main spillover to the global economy, so far, from the Israel-Hamas conflict has been major disruptions to shipping, but there has been a bigger and broader economic impact in the MENA region. While the effects on the Gulf economies has been and will …
Euro-zone construction output picked up in December, but remained well below last year’s peak. We expect it to drop again in 2024, in part due to a continued dismal performance by the sector in Germany. Data released today showed that euro-zone …
Data published today show that negotiated wage growth in the euro-zone remained strong at the end of last year. But these data won’t stop the ECB from cutting interest rates in April – as we are forecasting – as long as other indicators continue to point …
Following the huge fall in multi-family starts in January, we suspect the apartment sector will continue to be a drag on new development this year. But construction of single-family dwellings will remain strong. In January, housing starts suffered their …
19th February 2024
Japan’s industrial production data don’t fully take into account the influence of falling prices and have systematically underestimated the strength of manufacturing output. The upshot is that rather than losing importance, Japan’s industrial sector is …
This week we held a Drop-In on commercial property distress across the US, UK and Europe. Clients can access a recording here and find related analysis on our dedicated landing page . This Update provides answers to several questions on the UK and …
16th February 2024
The Czech economy has had the weakest performance of any EU country since the pandemic, and we think that growth will disappoint expectations again in 2024. This will keep inflation contained and put pressure on the central bank to loosen monetary …
We expect India’s stocks, bonds, and currency to rally over the remainder of this year. It’s been a strong start to the year for India’s financial markets. The MSCI India Index of the country’s equities has been the strongest performer of MSCI’s large …
While we expect the office and multifamily sectors to account for the lion’s share of distressed assets over the next couple of years, there is an important distinction between the two. Unlike multifamily, we expect impacts on offices to be widespread, …
15th February 2024
Although house prices continued to fall in January, lower mortgage rates are beginning to support affordability and stimulate home sales. With the sales-to-new listing ratio now pointing to positive house price inflation, we expect house prices to be …
Higher aluminium prices and lower production costs should incentivise Europe’s smelters to restart some production in both 2024 and 2025. The introduction of CBAM in 2026 means prices will then probably trade at a premium to other regions, particularly as …
South Africa’s fiscal strains have seen the government explore tapping revaluation gains on the country’s FX reserves held at the SARB. Utilising these funds to pay down the government’s debt would help to improve South Africa’s fiscal health. But there’s …
Argentine President Javier Milei’s ambitious economic reform plans have quickly run into political obstacles. There’s still plenty of fiscal tightening that Milei is likely to undertake and there have been some areas of success such as the peso …
Non-labour input costs are now moderating which should soon result in a more rapid slowdown in consumer price inflation than most are anticipating. In a recent Bulletin article, the RBA argued that “large cost increases over recent years are still flowing …
The rise in US bond yields has put renewed pressure on the yen, but we think further downside is limited. We still expect Treasury yields to resume their downward trend and for the yen to benefit most among G10 currencies vis-à-vis the dollar from this …
Mind the gap: Markets should focus on PCE not CPI The strong reaction to the January CPI data demonstrates that markets still don’t fully comprehend that the Fed is focused on the alternative PCE measure of inflation. While core CPI inflation was …
14th February 2024
The precipitous drop in US natural gas prices won’t persist for the rest of the year. Prices should rise by Q4 as US production growth slows and LNG exports rise. US natural gas prices have collapsed recently, falling around 18% week-on-week and 23% …
Capital inflows into EM bonds and equities have fallen sharply since January after the Fed pushed back expectations of the timing of rate cuts. The good news is that current account deficits in EMs have narrowed over the past year, meaning many EMs have …
The effects of El Niño will cause cocoa harvests in Côte d’Ivoire and Ghana, which account for more than half of global output, to fall by around 20% this year. But the related surge in cocoa prices means that, if anything, overall incomes are likely to …
South Africa’s latest hard activity data show that the economy finished last year with a whimper, but we think that easing electricity outages, weaker inflation pressures and less restrictive fiscal policy will support a modest pick-up in growth this …
With activity and inflation both softer than it had expected a few months ago, the RBNZ will likely stay put at its meeting at the end of the month. However, with a still-tight labour market fuelling uncertainty about domestically-sourced price pressures, …
Current fixed mortgage rates of around 4.6% are based on investors’ forecast that Bank Rate will be cut from 5.25% to 4.50% by the end of the year. We think that rates will be reduced a bit faster than that, in which case further declines in mortgage …
13th February 2024
Chairman Thomas Jordan’s recent comments about the franc raise questions over whether the SNB might use FX interventions to loosen monetary conditions. But we think policymakers will use the policy rate as the main tool to achieve price stability, and …
We think the huge expansion in nickel supply will keep the market balance in a sizeable surplus this year. Accordingly, we don’t think the price will muster a recovery from its recent slump. The nickel price has been under consistent downward pressure …
12th February 2024
Read my lips: No new tax cuts Speculation will inevitably build that a Donald Trump victory in this year’s presidential election would be followed, once again, by large-scale tax cuts. With the Federal budget outlook in a far worse position than back in …
A key point that stands out from the raft of EM central bank decisions over the past couple of weeks is that policymakers are focussed much more on domestically-generated price pressures than the Fed. We expect a pivot towards monetary easing in the …
Moody’s downgrade of Pemex at the end of last week reinforces the view we set out last year that the next government in Mexico will prove to be less supportive of the troubled state energy company. Ultimately, we think this will force Pemex to seek a …
A robust labour market will support Spanish office occupier demand to a greater extent than elsewhere in the euro-zone in the next few years. As a result, we think prime office rent growth will outperform the rest of the region. However, upgrades to the …
Pakistan’s general election has thrown the country’s political scene into turmoil, with no party emerging with a majority from Thursday’s poll. A hung parliament may complicate the country’s upcoming negotiations with the IMF over a new long-term loan …
9th February 2024
We think that EM equities will deliver better returns in the next couple of years than they have since the pandemic. Returns are likely to be lower than those we expect from US equities but similar to those from other DM equities. We expect equities in EM …
US corporate credit spreads have continued to shrink even as bankruptcies have soared but, while they are now fairly narrow, we think there is still some scope for them to tighten further over the remainder of this year. It hasn’t been a great start to …
8th February 2024
The recent fall in the homeownership rate revealed by the Housing Vacancy Survey (HVS) is unlikely to reverse given still-high mortgage costs. The survey also provided more evidence in support of our view that the homeowner market will remain tight this …
