Emmanuel Macron’s decision to call a snap legislative election has triggered turmoil in French politics that is spilling into its financial markets. But what’s driving market panic? Is France heading for a ‘Liz Truss’-style bond market meltdown? And how …
17th June 2024
In the latest episode of The Weekly Briefing from Capital Economics, Group Chief Economist Neil Shearing talks about what’s happening in France and what that means for the bond market. He also assesses the Fed’s June meeting and previews what the Bank of …
14th June 2024
The US dollar has been taken on a rollercoaster ride this week. The US CPI and PPI reports for May have suggested that price pressures are gradually easing. These somewhat promising data reports have boosted investors’ expectations for rate cuts, despite …
Inflation rises further, another rate hike likely in July The further rise in Russian in inflation to 8.3% y/y in May was stronger than expected, and means that an interest rate hike at the central bank’s next meeting in July now looks all but certain. …
Nigeria: Food price rises put focus on government A recent surge in food prices in Nigeria presents real risks to the optimistic tone that the authorities are trying to strike on the inflation outlook. Tackling the structural impediments to food …
The household debt-to-income ratio fell again in the first quarter, albeit because incomes continued to rise at a faster pace than debt levels. Although the aggregate situation is slowly improving, many households are still in a precarious situation, …
French government bonds and equities have sold off this week, and the euro has weakened. A lot of bad news now seems priced in, but we suspect the discount on French assets is here to stay. Investors have now had some time to digest French President …
Peso, real falls to add to central banks’ hawkishness Recent sharp falls in the Brazilian real and Mexican peso will add to concerns at their respective central banks. We now expect no further rate cuts in Brazil this year and the risks to our …
Fed split, but better data point to two rate cuts The Fed’s updated projections indicated that a slim majority of officials favour fewer than two interest rate cut this year but, in response to the soft May CPI, PPI and import price data, the markets …
Plummeting sentiment suggests consumers are suffering The further decline in the University of Michigan consumer sentiment index to a seven-month low of 65.6 in June, from 69.1, suggests that households are now struggling more under the weight of higher …
The focus in oil markets this week was on the long term with the IEA predicting that oil demand will peak in 2029 while OPEC argued there is no peak in sight. In any case, when the peak occurs is only part of the picture. In its annual oil report, …
EU announces new tariffs on China The immediate macroeconomic impact of the EU’s new tariffs on EV imports from China announced this week are likely to be fairly small. As we noted here , the EU imported 440,000 EVs (€9bn) from China over the past year. …
Strong start to the second quarter unlikely to be sustained The increases in manufacturing and wholesale sales in April were marginally lower than first estimated, but not by enough to make us doubt the preliminary estimate that GDP rose by a solid 0.3% …
The 10-year yield spread between government bonds in France and Germany has risen above 80bp, its highest since the euro-zone debt crisis. Should the far-right National Rally be in a position to form a government after the upcoming elections, we suspect a …
Higher levels of housebuilding is a prize that both Labour and the Conservatives seek, evidenced by the identical target of building 300,000 new homes a year published in their manifestos this week. (You can see all of our election analysis here , and …
The focus this week has been on the fallout of the European elections in France because there is a real chance that the parliamentary elections, to be held on 30 th June and 7 th July, will lead to a government led by the far-right Rassemblement National …
Credit growth bottoming out thanks to fiscal support Bank loan growth in China was the slowest on record in May, but accelerated government bond issuance helped broader credit growth edge up. Fiscal loosening should support further gains in the near term. …
Malaysia subsidy cuts to push up inflation Headline inflation in Malaysia has been among the lowest in Asia but that is soon set to change. Long-planned subsidy cuts aimed at improving the public finances started this week when the government lowered …
Still a bright future in Europe China protested the European Commission’s (EC) imposition of additional tariffs on Chinese-made EVs this week but, if the EU goes no further, China’s government is likely to see this as a good outcome. The European tariffs, …
Reports that the African National Congress (ANC) has reached a deal with the centre-right Democratic Alliance (DA) to form a “national unity” government will be welcomed by investors. If confirmed, President Ramaphosa’s broad policy agenda, centred around …
Prime Minister Modi’s third term got underway this week with the selection of the new cabinet. 25 of 30 cabinet ministers are unchanged from the previous government, including all of those in key roles. (The remaining five spots have been freed up for the …
Will the outcome of the UK general election move the dial on the UK economic outlook? How much would a Labour government deviate from Conservative economic policy? What does a change of government mean for the UK’s financial and housing markets? Our UK …
The Bank of Japan disappointed markets today by announcing that it will only present a detailed plan for reducing its bond purchases at its July meeting. We think it will also deliver a final policy rate hike then . Today’s BoJ meeting was a damp squib . …
This page has been updated since publication with additional analysis. Rise in core inflation likely to be temporary The Riksbank’s target measure of inflation, CPIF, remained at 2.3% in May, but the core measure (CPIF excluding energy) rose slightly for …
BoJ pledges to unveil taper plans next month With the Bank of Japan today disappointing financial markets by delaying any announcement on the reduction of its bond purchases to its July meeting, 10-year JGB yields initially dropped by around 5bp and …
Underlying price pressures will abate only slowly When Queensland Treasurer Cameron Dick unveiled the state government’s 2024/25 Budget, he made no pretence about his desire to prime the pump in the run the up to local elections in October. The Budget …
Bank will deliver a final rate hike in July The Bank of Japan announced today that it will present a detailed plan for reducing its bond purchases at the upcoming meeting in July and we think it will also deliver a final policy rate hike then. Around …
The US economy has persistently outperformed its peers for over a century, and as our Spotlight series argues, will continue to do so for the foreseeable future. More recently, the US has also benefited from securing low-cost energy supplies. But these …
13th June 2024
BoE watching and waiting for more evidence that inflation will settle at the 2% target But a summer rate cut is more likely than investors expect We think rates will be cut to 3.00% next year, below current market pricing of 4.00% Far more interesting …
Although falling Treasury yields may continue to exert some downward pressure on Japanese Government Bond (JGB) yields, we don’t think that will drive them much lower by the end of the year. The rollercoaster ride that Treasury yields have been on since …
The latest Crane Survey reported that a record high 16.4m sq. ft. of London office space was under construction in Q1. That in part reflects developers delaying projects until the demand outlook becomes more certain. But a decent level of new starts also …
We are retaining our forecast that the 10-year Treasury yield will fall to 4.0% by the end of this year. That reflects our expectation that the Fed will pursue a slightly looser conventional monetary policy than the one discounted in the financial markets …
While what’s in and what’s out of the election manifestos is informative, the bigger issue is whether the next government delivers or deviates from its manifesto. This Update sketches out three plausible scenarios and the possible implications for the …
The SNB is likely to keep rates on hold at 1.5% at its meeting next week as inflation in Q2 so far has been in line with the its forecast in March. Moreover, the latest data on wage growth were much stronger than ahead of the March meeting, which we think …
Norges Bank will leave its policy rate at 4.5% next week and reiterate that rate cuts are some way off. We think it will wait until December to start loosening monetary policy. As a reminder, the press release following Norges Bank’s meeting in May said …
NB. Our new and improved interactive Europe Commercial Property dashboard, home to key macro and commercial real estate forecasts, can be found here . Overview – The price correction showed signs of stabilisation in early 2024, but we think further, …
Soft PPI adds to the better inflation news With the May producer price data also coming in weaker than expected, we now estimate that the core PCE deflator increased by only 0.11% m/m last month, which would take the annual core PCE inflation rate down to …
Morocco: riding the EV wave Morocco’s domestic auto industry has boomed over the past decade and is drawing investment from major firms in Europe and China. With plans to more than double output in the coming years, the sector is likely to provide a …
The authorities in several major emerging markets, including Egypt, Argentina and Nigeria, have taken important policy steps recently that may allow them to ease restrictions on access to foreign currency. But we don’t think that this is the start of a …
China’s rapid uptake of clean power means that it is on track to overachieve on its target of reaching peak carbon dioxide emissions before 2030. That said, the pace of decline will be slow at first, not least because it will probably take time for …
We doubt the outcome of the UK’s general election will have a big impact on UK equities in general. Nonetheless, we still expect them to continue to underperform US equities. We don’t think the Labour Party’s return to power – which the polls suggest is …
Taiwan’s central bank (CBC) left its main policy rate unchanged today (at 2.0%), and with growth set to remain strong we expect rates to remain on hold throughout 2024 and 2025. In contrast, the consensus is expecting rate cuts next year. The decision to …
This page has been updated with additional analysis since first publication. Output fell and outlook for industry is poor The 0.1% m/m decrease in euro-zone industrial production in April was slightly weaker than the published consensus forecast of 0.2% …
With economic activity strengthening across Emerging Europe and inflationary pressures resurfacing in several countries, we think that the scope for monetary easing in the region this year is relatively narrow. Our interest rate forecasts in most …
Faltering demand and rising supply mean prices will slip back The May RICS survey was the weakest so far this year, as new demand faltered and sales slowed. With the quantity of homes coming onto the market increasing at the same time, prices are likely …
This page has been updated with additional analysis since first publication. Although the unemployment rate fell anew in May, leading indicators continued to point to a marked rise in the months ahead. All told, the data suggest that the RBA will remain …
Fed projects one cut this year, but notes inflation progress The median FOMC projection now shows only one 25bp rate cut this year, but it was a relatively close run thing. Four officials expect no cut this year, a further seven anticipate one cut, while …
12th June 2024
Fed forecasts one rate cut this year, but notes inflation progress This publication was resent to correct the error in the headline in an earlier version. The median FOMC projection now shows only one 25bp rate cut this year, but it was a relatively close …
Today’s release of the US CPI data for May offered some respite in markets after last Friday’s stronger-than-expected May payrolls data. On balance, we continue to anticipate that the Fed will eventually cut by a bit more than what is currently priced …
