Business investment had so far been resilient to higher interest rates, but growth stalled in the third quarter and there are three reasons why we think that’s a sign of things to come. First, the boost from surging manufacturing structures investment has …
8th November 2023
NBR yet to show signs of a dovish pivot The National Bank of Romania (NBR) left its policy rate on hold again at 7.00% today, and offered little evidence to suggest it is considering the start of an easing cycle just yet. We currently expect an easing …
Our latest UK commercial property valuation monitor is embedded below: A small rise in property yields in Q3 was not enough to offset a surge in alternative asset yields, particularly the 10-year gilt, and as a result valuations worsened. Looking ahead, …
Mortgage applications bottom out After their weakest month in 28 years, there were signs that mortgage applications for home purchase bottomed out at the end of October. Mortgage applications for home purchase dropped 9.1% m/m across October as a whole, …
Despite the steepest crash in commercial property values on record, the credit risk and asset quality of European banks’ commercial real estate (CRE) lending is holding up well. Further declines in values mean there could be a further deterioration, but …
This page has been updated with additional analysis since first publication. Sales fall further and more weakness ahead Euro-zone retail sales fell in September and, in our view, will remain weak in the coming months as the economy falls into recession. …
The Vaca Muerta shale formation will alleviate some of the pressure on Argentina’s fragile balance of payments position by substantially reducing the country’s gas import bill and raising oil export revenues. While this is good news for the crisis-ridden …
One factor that may have contributed to higher Treasury term premia, as posited recently by the Treasury Borrowing Advisory Committee in connection with the Quarterly Refunding, is a shift in the correlation between US government bonds and equities. We …
7th November 2023
Activity in the euro-zone’s construction sector is declining and the outlook is poor. The latest surveys suggest that construction output will decline by up to 2% q/q in Q4. Given the tightening of financial conditions over the past few years, the …
Italian households have been the main net purchasers of Italian government bonds recently and we suspect that they will buy a lot more in the coming months. However, the sustainability of Italy’s debt will ultimately depend not on the behaviour of any one …
Despite some differences in the monetary policy outlooks for Australia and the US, we doubt 10-year yields in the two economies will diverge much. Earlier today the Reserve Bank of Australia (RBA) made what looks likely to be one of the last moves in the …
Growth in Costa Rica is likely to slow by more in 2024 than officials currently expect amid weaker growth in the US, high commodity prices and tight fiscal policy. Further ahead, though, a burgeoning medical goods sector, robust FDI inflows and the …
The rise in house prices in October was a challenge to our long-held view that high borrowing costs will cause them to drop further. The resilience of prices in part reflects longer mortgage terms, which are reducing mortgage payments. And a tight labour …
The recent stickiness of the Fed’s preferred measure of ‘supercore’ inflation mainly reflects temporary factors rather than ongoing tightness in the labour market. The upshot is that we still expect a decline in inflation for PCE core services ex-housing …
Higher profitability has helped to boost EM banks’ financial positions over the past year and reduced the tail of weak banks that might struggle to cope with rising loan losses on their balance sheets. The overall EM picture looks strong, but pockets of …
China’s import data for October indicated that its demand for commodities remains robust but we think that further growth in the next couple of months is likely to be modest. China’s preliminary trade data for October, released today , showed a …
Support from rebounding exports unlikely to last The modest increase in the trade deficit to $61.5bn in September, from $58.7bn, reflected strong gains in imports and exports, capping off solid quarterly rebounds in both. But with the global economy …
Surplus boosted by temporary surge in oil prices The September trade data look encouraging at first glance, with the merchandise trade surplus widening to $2.0bn, from $1.0bn, but the 2.7% m/m increase in export values was mostly due to higher oil prices. …
The past few years have seen Saudi Arabia continue to move away from the US orbit and, as part of our work on global fracturing, we no longer consider Saudi to be unaligned between the US and China. Instead, we now think that it leans more towards …
Worse than expected (again) German industrial production fell much more than anticipated in September and the prospects for the winter months look very poor. The 1.4% m/m fall in industrial production in September (see Chart 1) was worse than expected …
This page has been updated with additional analysis since first publication. Confirmation house prices have stopped falling The increase in the Halifax house price index in October confirmed that house prices are rising, suggesting that the high cost of …
As had been widely expected, the RBA handed down a 25bp rate hike at its meeting today. With the cash rate now at 4.35%, we believe the Bank’s tightening cycle is over. If we’re right that the Australian economy will soon take a turn for the worse, rate …
This page has been updated with additional analysis since first publication . Import volumes surpass 2021 peak The year-on-year contraction in export values deepened last month. But this was mainly due to lower export prices. Export volumes were little …
RBA’s next move will be down With today’s widely anticipated rate rise now behind us, we believe the RBA’s tightening cycle is at an end. The RBA’s decision to lift its cash rate by 25bp at today’s meeting came as a surprise to few. Indeed, 35 out of 39 …
This page has been updated with additional analysis since first publication. Wage growth will continue to accelerate Regular wage growth accelerated in September and we think it will continue to climb to around 2% next year. According to the preliminary …
The Fed’s latest Senior Loan Officer Opinion Survey suggests that, while they remain tight, credit conditions have eased a little since the run of regional bank failures earlier this year prompted the Fed to boost its liquidity provisions to the sector. …
6th November 2023
We held a Drop-In last week to explain our thoughts on the latest policy communications from the Fed, ECB, and Bank of England following their decisions to leave rates on hold. (See the recording here .) This Update answers several of the questions that …
With the unemployment rate rising, the Sahm rule will probably be triggered soon. That will prompt claims a recession has started but, since that rise is due to increased labour supply as much as it is weaker demand, we would caution against relying on …
We think the risks to the “goldilocks” view being discounted in markets are skewed towards a bigger slowdown in the US than is currently discounted, driving credit spreads up over the coming months. The market reaction to data in the US last week, rounded …
Italy stands out in the euro-zone for its particularly worrying public debt dynamics. The governments of most euro-zone countries could stabilise their debt ratios while running primary budget deficits. But due to Italy’s poor growth prospects and higher …
There are increasing signs that the most leveraged borrowers are struggling to refinance their mortgages with traditional lenders. The small but meaningful number of insured mortgage holders who took out a two-year fix when house prices peaked in early …
A version of this note was published in The Times on 7th November, 2023 World leaders gathered at Bletchley Park, the home of Britain’s wartime code breakers, last week to hammer out a joint response to an altogether more modern puzzle: how to regulate …
This page has been updated with additional analysis since first publication. PMIs underline weak outlook, easing price pressures Final PMIs released today confirmed the preliminary estimates and are consistent with our forecast that euro-zone GDP will …
This page has been updated with additional analysis since first publication. Housing suffers but commercial surprisingly resilient The uptick in the headline CIPS construction PMI from 45.0 in September to 45.6 in October still left it below the 50 …
Figures released today suggest that economic growth remained broadly stable last quarter, but we don’t have much faith in the official data. Our own in-house activity tracker shows that the economy is performing worse than what the official data suggest. …
Group Chief Economist Neil Shearing is back to discuss what the recent data say about the global economic outlook – including October US payrolls and China PMIs – and what to expect from the Fed, ECB and Bank of England following their decisions to keep …
3rd November 2023
After a remarkably slow October in currency markets – for all the fireworks in bond and equity markets, most major currencies were roughly unchanged on the month – November has started with a bang. Between a relatively dovish FOMC and a spate of softer US …
The Riksbank’s request for a capital injection from the government is not a good look for an independent central bank. But its QE-related losses will be smaller than those of many other central banks: the “bailout” is required because of its accounting …
AGOA conference begins as Uganda kicked out Officials are discussing the future of a key US-Africa trade act at a conference in Johannesburg that started today. Uganda is already set to lose duty-free access to the US which, although not a major blow, is …
We think today’s big moves in markets in the wake of October’s US Employment Report are a sign of things to come over the next twelve months or so. More evidence that the labour market in the US is cooling and that wage growth there is moderating (see …
Energy and precious metal prices will remain volatile while there is a risk that the war between Israel and Hamas expands to include other countries in the region. For now, energy supplies have been largely uninterrupted, and prices should remain close to …
There is now mounting evidence that the economy is set for a renewed slowdown in the fourth quarter and that inflationary pressures from the labour market continue to ease. Although markets have already moved to price out any real chance of further rate …
Employment edged up in October but the broad-based weakness of GDP growth, the depressed business surveys and the rapidly weakening housing market all suggest that the economy is in the early stages of recession. GDP probably contracted again last quarter …
Oil prices continued to fall this week, perhaps reflecting less concern that the Israel-Hamas conflict will expand to other countries in the region and that Middle East oil supply will be negatively affected. Consistent with this, the price of gold fell …
Copom cuts, but fiscal risks return to the spotlight Fiscal risks are rearing their head again in Brazil after President Lula suggested that the government may no longer aim for a balanced primary budget next year as previously pledged. Finance Minister …
Energy prices will remain historically high over the remainder of this year. The Israel-Hamas conflict has increased volatility in energy markets, but supply has not been disrupted. Oil prices will remain high as OPEC+ output cuts keep supply constrained. …
