Despite another large y/y fall in green technology export values from China in March, falling solar panel and battery prices mean that China’s export volumes of the so-called “New Three” were close to the peak recorded in September 2023. After the 12.8% …
22nd April 2024
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 …
19th April 2024
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 …
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 …
18th April 2024
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 …
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 …
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 …
17th April 2024
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 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 …
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 …
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 …
As the plunge in employment in Q1 is probably a response to the recession last year, employment will probably soon rebound now that the economy is growing again. The real risk is a rebound in job vacancies prevents wage growth from falling as fast and as …
Concerns about escalating tensions in the Middle East and the impact on global oil supplies increase the likelihood that the US will renew its sanctions waiver on Venezuela when the current one expires on Thursday. A rise in key oil exports would help the …
New housing policies to provide only modest support The government’s policies to boost affordability for first-time buyers will have only a modest impact on demand, but they still add to our sense that house prices will rise in the coming years. While …
As things stand, higher oil prices will boost inflation in advanced economies by only a few tenths of a percentage point in the months ahead and we still expect this boost to fade as the year goes on. There are upside risks relating to tensions in the …
This year’s falls in iron ore prices are likely to have been a dress rehearsal for what's ahead. Our China team’s forecast for the property sector to halve by the end of the decade does not bode well for iron ore producers’ plans to ramp up production. …
Many of the usual relationships between oil prices and equities haven’t held over recent months. This Update explores the reason for that, and what may lie in store for energy equities and the broader market. Since troughing on 12 th December 2023, the …
The resilience of Swiss GDP over the past two years has been largely due to the merchanting sector, which buys and sells goods without them ever entering Switzerland. Excluding that sector, the economy was smaller at the end of 2023 than it was two years …
While rental performance in German commercial property markets has been relatively solid given the country’s poor economic performance over the past five or so years, we think this is set to end. In a recent Focus we highlighted how, after a very subdued …
Local factors will determine the next moves by most of Asia’s central banks, not the actions of the US Fed. We expect policymakers in Thailand, Vietnam, the Philippines and Korea to lower interest rates later this year, regardless of whether the Fed cuts. …
Our analysis shows that for CPI inflation to get stuck above 2.0% it would require oil prices and UK wholesale gas prices to rise to $110 per barrel and 150 pence per therm respectively. And for CPI inflation to return to 5.0%, it would require increases …
15th April 2024
We think that any impact from the suspension of trading of Russian metal on the LME and CME is likely to be muted, given that trade flows have already shifted markedly and it is unlikely to impact supply. The US and UK announced fresh sanctions on Russia …
The Iranian strike over the weekend has been largely shrugged off by Israel’s financial markets and on its own is unlikely to have a major impact on the economy. The key uncertainty now is how Israel responds. An aggressive Israeli military response that …
There are clearly many ways in which tensions between Iran and Israel could escalate and push up oil prices following the Iranian drone strike at the weekend. But the risk that a conflict involving Iran disrupts oil production in the Gulf states is much …
Weak capital spending is a key reason for Australia’s poor productivity performance. While investment growth has been strong recently, we think it will take until the second half of this decade before the level of capital spending is high enough to return …
Ben Bernanke didn’t pull any punches in his review of the Bank of England’s forecasting/communications and recommended a full revamp of the Bank’s main forecasting model, using alternative scenarios to express uncertainties rather than fan charts and …
12th April 2024
We think the price of gold will ease back from current record highs by end-2024, but falling US Treasury yields and some softness in the US dollar will keep the price elevated. Similarly, we expect the silver price to fall, but it will outperform gold. We …
We think ‘value’ stocks will generally underperform their ‘growth’ counterparts while a bubble in the US stock market continues to inflate, even if Treasury yields don’t drop back in the way that we expect. Depending on your perspective, value stocks – …
China’s energy and industrial metal imports were generally strong in the first quarter. We expect them to hold up well in the coming months as fiscal stimulus continues to support construction activity, but we expect import growth to subside later in the …
After a positive end to 2023 commercial property investment has since lost momentum, not helped by a rebound in interest rates. But we still think interest rates will fall back this year and, while commercial capital values may see a further decline, …
The Bank of Korea left its policy rate on hold today (at 3.5%), but kept open the possibility of rate cuts later this year. However, with inflation concerns continuing to linger, we are pushing back the timing of when we think the central bank will cut …
We don’t expect the tough times to last for Treasuries. But although their woes so far have coincided with big gains in the stock market (at least until very recently) we don’t think a recovery in Treasuries would necessarily coincide with an end to …
Despite yet another hotter-than-expected US CPI release, there are few signs in bond markets that long-term inflation expectations are de-anchoring. That supports our base case that US Treasury yields will fall back later this year, even if it also …
11th April 2024
The euro has fallen sharply against the greenback this week, and we wouldn’t be surprised if it weakens a bit further in the short term. That said, we think a fall below parity in the EUR/USD rate is unlikely in the absence of a substantial divergence in …
While inflation fell further across Central and Eastern Europe (CEE) in March, we think that the recent run of good CPI news is largely over. We expect inflation to rise back above central banks’ target ranges in Hungary and Poland by end-2024 (to near …
The ECB’s decision to update its guidance suggests that an interest rate cut at the next meeting in June is very likely. Christine Lagarde would understandably not commit to a path of rate cuts, but we expect the Bank to reduce the deposit rate from 4% …
Nigeria’s authorities have ceased central bank deficit monetisation via the ways and means facility. But the government will struggle to finance its ambitious spending plans – particularly given the challenges of raising revenues. We suspect that the …
This week we held a Drop-In on the outlook for euro-zone commercial property. Clients can access a recording here . This Update provides answers to the most interesting questions that emerged from the discussion. Has inflation indexation helped boost …
Recovery in mortgage lending will pause in Q2 Demand for mortgage credit jumped in Q1 in response to the drop in mortgage rates over the second half of 2023. But a rise in financial market interest rates this week, due to higher-than-expected inflation in …
The Bank of England’s Q1 Credit Conditions Survey provides further evidence that the drag on activity from high interest rates is starting to fade. Looser credit conditions will soon aid the economic recovery. The fall in mortgage rates at the start of …
Capital flows into EMs have continued to rise in recent weeks, aided by robust global risk appetite. While yesterday’s strong US CPI release has clouded the outlook for Fed interest rate cuts and weighed on some EM currencies, we still believe booming …
Even if the US Federal Reserve leaves its policy rate unchanged for longer than we expect, our forecast that inflation in the UK will be lower than in the US suggests this won’t prevent the Bank of England from cutting rates from 5.25% to 5.00% in June …
Cautious optimism from surveyors on prices and activity The slight increase in the balances for past prices and new buyer enquiries in the RICS Residential Market Survey for March showed that demand remained robust, as mortgage rates stabilised after …
10th April 2024
Governor Tiff Macklem sounded relatively dovish in the Bank of Canada’s press conference today, leaving the door open to an interest rate cut at the next meeting in June. While the Bank left the policy rate at 5.0% today, the policy statement and …
