While the turmoil across financial markets has eased a bit this week, the dollar has continued to weaken across the board. The gap between actual exchange rates and what short-term interest rate differentials point to has widened a bit further, suggesting …
17th April 2025
Markets were almost evenly split on what the Bank of Canada would do yesterday, right up until the last minute. In the end, the Bank opted to keep interest rates unchanged at 2.75%, rather than loosen policy by an additional 25bp. In his opening …
More cuts to come from the ECB This week’s decision by the ECB to cut interest rates came as no surprise, and the Bank’s overall messaging reinforces our view – which is shared by investors – that the Bank will keep cutting. (You can read our response …
Recession looking even less likely For all the recent anguish about tariff-induced equity selloffs and plunging sentiment, this week served as a valuable reminder that the only true measure of the health of the US economy remains the hard data. On …
Pharmaceuticals tariffs incoming A US import levy on pharmaceuticals would be a blow to India’s economy but far from a fatal one. Admittedly, India has been dubbed the “pharmacy of the world” and its success in the industry has helped its pharmaceuticals …
CBRT hikes rates amid significant capital outflows Turkey’s central bank (CBRT) delivered a hawkish surprise in raising its one-week repo rate to 46.00% today. While this won't tighten monetary conditions, it does formalise the tightening delivered …
Argentina: a step in the right direction It’s been a busy week for Argentina. Following the announcement of a fresh $20bn IMF deal over the weekend, authorities announced that from Monday a raft of capital controls would be eased and Argentina would move …
SARB’s inflation uncertainty may be falling The SARB’s Monetary Policy Review (MPR) published this week set out plenty of upside risks to inflation. But it looks like some of the risks from VAT hikes and tariffs have diminished, which could give the SARB …
Lower oil demand forecasts are not low enough The IEA and OPEC both lowered their oil demand forecasts this week, reflecting the impact of Trump’s trade war with the rest of the world, though the forecasts still appear overly rosy. Given the uncertainty …
Electronics reprieve may prove short lived The US tariff exemptions announced last Friday on various electronics products, including on smartphones, semiconductors and TVs, represent a further let-off for Asia after the decision to pause the reciprocal …
The news on inflation this week was pretty good even before any influence from the US tariffs chaos has been felt. Although average earnings growth stayed close to 6.0% in February, pay growth on the more timely PAYE measure slowed to 5.4%. (See here .) …
Both sides are taking an axe to economic ties We’ve argued for years that geopolitical forces are fracturing the global economy into blocs, with the key fault line being the US-China rivalry. Until recently, this had been a gradual shift that was …
Gulf reins in oil overproducers Recent moves to hike OPEC+ oil output quotas but make overproducers cut production suggests that the Gulf economies are taking a firmer line on regaining global oil market share. But fresh falls in oil prices could scupper …
RBA will go slow and steady The minutes of the RBA’s April meeting revealed that the Bank’s decision to leave rates unchanged at 4.10% was underpinned by its view that risks to its outlook were two-sided. Granted, that assessment was made prior to Trumps’ …
Tariff impact may not be as big as feared The OIS markets imply that it’s a coin flip whether the Bank of Japan will raise rates again this year. That makes sense because the Bank sent some rather dovish signals this week. Governor Ueda noted in an …
After another tumultuous week across financial markets, the dollar is on track for one of its worst weeks on record. At this point, the main question for the dollar is no longer what the direct effects of President Trump’s tariffs (many of which were …
11th April 2025
Pause on reciprocal tariffs reduces risks for CEE President Trump’s 90-day pause on “reciprocal” tariffs has reduced the scale of downside risks to the global economy, and our new working assumption is that US tariffs on most economies stay at the 10% …
Canadians shun the US, but will they spend at home? It’s been two months since Canadians began boycotting US goods and services in the wake of the aggression from President Trump over tariffs and his apparent desire to make Canada the 51 st state. The …
As we suggested in our Update from last weekend, it was only a matter of time before the increasingly adverse market reaction forced President Donald Trump to reconsider his plan to levy prohibitive reciprocal tariffs on all major trading partners. He was …
The extraordinary tariff chaos over the past week and associated fallout in the financial markets (see our coverage here ) have increased the chances that the damage to the UK from the US trade war will be larger and that inflation and interest rates will …
China rather than US trade big concern for Africa Africa’s direct damage from tariffs imposed by the US should be limited, but the indirect hit will be larger if global growth weakens, and financial spillovers materialise. After US President Trump dialed …
Crisis is not over, but winners could emerge Most of Asia outside China breathed a sigh of relief when Donald Trump announced a 90-day pause on his “reciprocal” tariffs. However, the crisis for the region is far from over. Exports from Asia to the US …
Tariffs continue to buffet commodity markets Changes in US tariff policy continued to drive dramatic swings in commodity prices this week – Brent crude oil prices briefly hit a four-year low of $58.5pb in intraday trading on Wednesday. There is still a …
This week’s historic changes in US trade policy and the associated market fallout point in the direction of a weaker euro-zone economy, lower inflation and looser monetary policy. While US tariff policy has become extraordinarily volatile, we are assuming …
Argentina & the IMF – 23 rd time lucky? The IMF announced this week that it had reached a Staff-Level Agreement with Argentina on a 48-Month Extended Fund Facility totalling $20bn – if approved, it would be the 23 rd IMF deal in Argentina’s fraught …
At some point a partial rollback in tariffs is likely… The effective US tariff rate on China started the year at 11% (based on 2024 weights). It is now at 145%. Earlier this week we noted that tariff rates above 100% would cause Chinese exports to the US …
Opportunities for India amid tariff chaos All of our analysis of the latest twists and turns in the trade war – notably President Trump’s decision to postpone reciprocal tariffs (bar China) for 90 days – can be found here . Of course, things are subject …
Australian economy should hold up As one might have expected, the fallout from Trump’s trade war continued to dominate the headlines this week. In short, a deep rout in US bond markets appears to have convinced Trump to pare back tariffs on several …
BoJ will stay on sidelines for now The relief that followed the suspension of reciprocal tariffs for all countries except China on Wednesday proved short-lived as bilateral tariffs between China and the US are still being ratcheted up to eye-watering …
The US-China trade war and OPEC+’s surprise oil output hike has sent oil prices tumbling and are now below breakeven fiscal and external levels for the many Gulf oil producers, notably Saudi Arabia. If oil prices stay low or even fall further, governments …
10th April 2025
President Trump’s extraordinary “Liberation Day” announcement has prompted a major risk-off event across financial markets, sending safe-haven currencies soaring and commodity currencies crashing. It has also put paid to the idea that his aggressive …
4th April 2025
Republicans need to get with the recycling program President Donald Trump’s big “Liberation Day” announcement went down badly in the markets, as fears mounted that the bigger-than-expected reciprocal tariffs would trigger a recession. The surge in March …
A weaker renminbi, just not against the dollar China’s response today to President Trump’s 34% “reciprocal tariff” on China was more aggressive than we had anticipated . (Initial thoughts on Trump’s tariff on China can be found here .) The moves take the …
If the US tariffs on imports from the EU announced this week are kept in place, our current assessment is that this will lower GDP growth across Central and Eastern Europe (CEE) by 0.3-0.4%-pts on average over the coming year. Judging by the sharp …
Despite being one of the first targets in President Donald Trump’s crosshairs following his return to the Oval Office, Canada made it through “Liberation Day” relatively unscathed. We gave our full thoughts in a note published on Thursday. (See here .) …
Dodging large tariffs Governments across Latin America are likely to be breathing sighs of relief following US President Trump’s tariff announcement on Wednesday. Mexico will remain subject to the duties announced through March which contained large …
Direct hit from Trump tariffs to be limited African economies will, for the most part, be relatively unaffected by US President Trump’s tariff announcement this week, at least directly. But it may cause indirect harm through lower commodity prices. And …
Asian economies were hit with some of the highest “reciprocal” tariffs by the US. (See Chart 1.) Our initial response is here , and more of our coverage can be found on this page . Chart 1: “Reciprocal” Tariffs Sources : White House, Capital Economics …
President Trump’s decision to hit the EU with a 20% tariff on all imports has roiled European markets – the Euro Stoxx is down more than 7% since the announcement – and pose a growing risk to the global and European economies. Our forecast before the …
With President Trump announcing reciprocal tariffs of 34% and 20% on all US imports from China and the European Union respectively this week, the news that UK goods exports to the US will be subject to the minimum 10% “baseline” tariff from 5 th April …
The aftermath of “Liberation Day” It was notable that most commodities received exemptions from the latest round of US tariffs. Nonetheless, commodity prices have fallen sharply on the back of global growth concerns. See here for our full assessment of …
Near-term hit from tariffs for India won’t be big Our response to the Liberation Day tariff announcements includes analysis of the global macro impact here , the financial market impact here , online briefings that can be viewed on demand here and various …
More policy support may be forthcoming Although the RBA left rates unchanged on Tuesday, it sounded a lot more dovish than it did in February. Indeed, it significantly toned down its concerns about upside inflation risks and the dangers of prematurely …
Tankan consistent with further tightening Compared to other Asian economies, the 24% US tariff on imports from Japan announced this week looks rather modest. Nonetheless, the chances that the Bank of Japan will hike rates in May as we’re forecasting have …
MENA can’t escape Trump’s trade war The Executive Order signed by US President Trump yesterday brought a flat 10% tariff on all countries’ exports to the US with an additional reciprocal rate for some economies. While the Middle East may be less …
3rd April 2025
Australian house price growth remained soft in March, amid still-weak housing demand. Although the RBA’s easing cycle could help deliver a shift in momentum later this year, stretched affordability is likely to constrain the strength of the rebound. Much …
1st April 2025
The recent scrapping of the carbon tax in Canada shows that the political pushback against climate policy is certainly not just confined to the United States. But to paraphrase Mark Twain, rumours of the death of climate policy are greatly exaggerated; …
31st March 2025
Despite President Trump’s decision to jump the gun with tariffs on the auto sector this week (ahead of next week’s widely trailed announcement on 2 nd April), the dollar is ending the week broadly flat on net. In part, that may be on account of the damage …
28th March 2025
Motor vehicle tariffs to boost inflation The Trump administration’s 25% tariffs on most motor vehicle and some parts imports is an upside risk to our inflation forecasts. As a reminder, our forecasts have long been based on the assumption that Trump would …
Hopes of making it a week without any new tariff news were dashed on Wednesday when President Donald Trump announced a 25% tariff on motor vehicle and parts imports from April 3 rd . Despite accounting for 10% of Canada’s goods exports to the US, the hit …
