The near-relentless narrowing in US credit spreads over the past year or so has left them at their lowest levels since late 2021. This echoes similarly upbeat pricing in the stock market. But, while we think that equities still have plenty of room to …
7th May 2024
Europe will raise barriers to trade and investment with China in the coming months and years. But policymakers will try to balance conflicting objectives so the result may well be a gradual rather than sudden increase in protectionism with measures …
The fall in oil prices since Iran and Israel’s back-and-forth attacks suggests that some of the risk premium in prices has now unwound. Prices continue to be supported by OPEC+ production cuts but we suspect that members will gradually unwind these cuts …
The strong rally in industrial metals prices seems stretched and, as a result, we expect prices to ease lower by end-year. After all, while industrial metals demand will recover this year, boosted by a combination of interest rate cuts, a recovery in …
The decision by Turkey last week to suspend all goods trade with Israel until there is a permanent ceasefire in the war in Gaza is unlikely to have a major macroeconomic impact in either country, although Israel’s construction sector appears vulnerable …
Saudi Arabia’s budget deficit widened further at the start of this year and, for now at least, the government seems comfortable with maintaining the loose fiscal stance and issuing more debt. If oil prices fall back further as we expect, however, a return …
The rebound in prime retail rents is set to wane this year. But we think prime rents on luxury high streets will continue to outperform those of mass markets in the coming years. The return to rental growth on high streets in 2023 after three years of …
The sharp rise in the price of carbon under China’s Emission Trading Scheme (ETS) this year, to a record high, underlines that Beijing sees carbon pricing as a key part of its emissions-reduction toolkit. Although the price of polluting in China is likely …
Commercial activity rebounds, but housing still subdued The headline CIPS construction PMI rose for the fifth consecutive month to 53.0 in April, a 14-month high. The rise was driven by improvements to the commercial and civil engineering components, …
The RBA’s decision to leave rates on hold at its meeting today suggests that there is a high bar for any further tightening of monetary policy. Indeed, the Board seems keen on minimising the collateral damage to the economy from its war on inflation. On …
RBA content to stay put for a while The RBA’s decision to leave rates unchanged at 4.35%, despite the material upside surprise in the CPI data last quarter, suggests that the bar for a resumption of rate hikes is high. However, the other side of that coin …
Banks easing credit conditions amid soft demand The second-quarter Senior Loan Officer Opinion Survey revealed that, a year after the regional banking crisis, only a modest net share of banks are still tightening lending standards. The Net percentage of …
6th May 2024
The national accounts data released today suggest that economic growth in Indonesia remained broadly stable last quarter, but we don’t have much faith in the official data. With economic activity likely to remain weak and concerns about inflation and the …
In the latest episode of The Weekly Briefing from Capital Economics, Group Chief Economist Neil Shearing unpacks a tumultuous week in markets that ended on a high. April's soft payrolls report may have given investors much-needed evidence that US …
4th May 2024
An eventful week in financial markets is ending with the dollar down, but mounting a comeback in the wake of today’s worryingly weak US non-manufacturing ISM survey . Between the earlier softer-than-expected US non-farm payrolls , the cautious message …
3rd May 2024
After 12 long years, the Trans Mountain oil pipeline expansion finally entered commercial service this week. The pipeline has the potential to raise oil exports significantly, but the full boost is unlikely to be felt for some time. The project increases …
Fundamentals point to slower wage growth Powell leaves all options open Fed Chair Jerome Powell argued in his post-FOMC press conference this week that, despite the stickiness of inflation in recent months, additional interest rate hikes were still …
Today’s favourable reaction in the US stock market to April's softer-than-expected Employment Report has coincided with renewed hopes of interest rate cuts, judging by the initial plunge in the 2-year Treasury yield towards 4.7%. (See Chart 1.) …
SA’s growth pick-up coming too late for the ANC This week, South Africa manufacturing PMI release reinforced our view that an easing drag from electricity outages will support a pick-up in growth over the coming quarters. But stronger growth is coming …
Rise in prices paid not yet a concern The fall in the ISM services index to 49.4 in April, from 51.4 in March, suggests that services spending could slow from the 4% annualised in the first quarter. The prices paid index rebounded but, for now, it is …
Trump’s return could benefit India With Donald Trump’s protectionist approach to trade on full display in an interview with the Time magazine this week, what might the implications of a second Trump presidency be for India? India is not as dependent on US …
The 6% fall in the price of Brent oil this week, to around $84 per barrel at the time of writing, was at least partly driven by receding fears that an escalation of hostilities in the Middle East could imperil oil supply. That said, geopolitics in the …
Battle of the survey data ... ESIs vs the PMIs The two survey measures of activity released out of Central and Eastern Europe (CEE) this week appeared to offer quite different insights into the performance of the region’s economies at the start of Q2. …
Encouraging start to the year Growth in the region came to a standstill in Q4 of last year, but data released over the past week add to the evidence of a strong rebound in Q1. Admittedly, the flash GDP data from Mexico released on Tuesday showed that, …
Policy hasn’t kickstarted lending to developers Bank lending decelerated to its slowest pace on record in March. The sectoral breakdown released this week provides some insight into what’s been behind the slowdown. The big picture is that the property …
Despite the correction in equity markets over the past month, risk premia generally remain low across financial markets. While we expect this to continue as an AI-driven bubble inflates in equity markets, this Update explores four areas that could …
Labour market easing puts rate cuts back on the table April’s employment report was weaker across the board; with employment growth slowing back to the pace from last fall, the unemployment rate ticking up to 3.9% and average hourly earnings growth …
Data released this week showed that euro-zone GDP rose by a stronger-than-expected 0.3% q/q in Q1. And the disinflation process stalled in April, with the headline rate unchanged at 2.4%. (See here.) But GDP was supported by a big rise in construction in …
We’ll be discussing the outlook for Bank of England policy in a 20-minute online briefing at 3pm BST on Thursday 9th May. (Register here .) OECD too downbeat We think the OECD’s new forecast that the UK will grow at a slower rate in 2025 (of 1.0%) than …
Rate cuts still likely despite strong Q1 growth In a speech this week at an Asian Development Bank conference, Bank of Korea Governor Rhee said that strong GDP growth in the first quarter meant the Bank would need to reconsider the timing of possible …
Inflation in Norway has been falling faster than Norges Bank expected for some time, but with the core rate still a long way above target, today’s communications show that policymakers are not counting their chickens. While they now seem to envisage …
Inflation pressures stabilising, rate cuts still some way off The slightly smaller-than-expected rise in Turkish inflation in April to 69.8% y/y (consensus 70.3%) offers encouraging signs that price pressures have softened again. The 3.2% m/m increase was …
Government intervenes in FX market yet again As Japanese markets were closed due to Sh ō wa day, the yen surpassed 160 against the dollar in thin trading on Monday, the weakest it has been since the mid-1980s. While the Ministry of Finance refused to …
RBNZ caught between a rock and a hard place We learnt this week that New Zealand’s labour market deteriorated further last quarter. On the back of unexpected job shedding, the unemployment rate rose from 4.0% to 4.3% in Q1, above the RBNZ’s forecast of …
The latest manufacturing PMIs suggest that global industry continued to recover at the start of Q2, but that this was entirely due to higher output in emerging markets, while activity remained much weaker in advanced economies. Meanwhile, the increase in …
2nd May 2024
This week’s FOMC meeting supports our view that bond yields will fall back a bit further this year. Overall, financial markets took yesterday’s FOMC meeting and the following press conference as fairly dovish . Arguably, the key point in Chair Powell’s …
The EM manufacturing PMI for April showed that industry continued its strong start to the year through to the beginning of Q2. At a regional level, the narrative was largely unchanged: India remains the star performer, while industry in Central Europe …
Many central banks are concerned about the fact that services inflation has remained too high. But we think the risks in Switzerland are skewed to the downside and, in our view, outweigh the upside risks from goods prices. This leaves us comfortable with …
Our forecast that the Bank of Canada will cut interest rates earlier and more aggressively than the Federal Reserve means that the loonie is likely to depreciate, but we doubt the move will be large enough to push up imported goods inflation …
The Riksbank is likely to kick off its easing cycle next week by cutting its policy rate from 4.0% to 3.75%. Beyond that, our forecast is for 100bp of rate cuts this year which is substantially more than investors are anticipating, as inflation looks on …
Is Saudi Arabia moving away from China’s orbit? Reports that the US and Saudi Arabia are close to a new security pact would, if confirmed, cause us to re-evaluate our view of the Kingdom’s alignment in a fracturing global economy. Prior to the start of …
The revolution in remote work has not been kind to the office sector. But smaller, higher quality offices have performed relatively well over the past couple of years. With fewer workers in the office firms have been able to cut space requirements and …
With downtowns generally suffering most from the growth in remote work, the hardest-hit cities such as San Francisco are now seeing this impact other revenue streams too, not least tourism. While there are promising signs that conversions from office to …
External demand still weak Despite the slump in March, export volumes grew strongly over the first quarter and net trade appears to have been behind about half of the likely 2.5% annualised rise in first-quarter GDP. Nonetheless, the fall in March and the …
Euro-zone construction output picked up at the beginning of this year but we don’t think this was the beginning of a sustained rebound. Surveys suggest that output will decline in the next few months, and while rate cuts should support a recovery later in …
Slight hawkish shift at the CNB, but rates to fall further than most expect The communications accompanying the decision by the Czech National Bank (CNB) to cut its policy rate by 50bp again today (to 5.25%) were slightly more hawkish than expected, but …
Deficit narrows; Productivity growth stalls The trade deficit narrowed slightly in March to $69.4bn, from $69.5bn, with exports down by 2.0% m/m and imports falling by 1.6%. The $5.1bn decline in goods exports included a $1.2bn drop in civilian aircraft …
While Chinese lending to Africa has fallen sharply from its peak last decade, China will remain a big player in the region’s external financing – particularly if some of the foreign exchange generated by China’s enormous trade surplus is recycled in …
Korea is one of the few countries in the region where inflation is still above target. However, with economic growth set to slow and the government stepping up efforts to bring food prices down, we expect the headline rate to fall back to target by the …
On Tuesday we held a Drop-in on the outlook for the German economy. This Update summarises the key points that we discussed and answers some of the questions that we received during the event. 1. Do the Q1 GDP data mean Germany is out of recession? The …
