This page has been updated with additional analysis since first publication. Economy struggles to gain momentum The modest rebound in GDP last quarter doesn’t change the bigger picture that the New Zealand economy is worse for wear. In fact, timely survey …
20th June 2024
No room for rate cuts this year The Brazilian central bank kept the Selic rate unchanged at 10.50% and with the headline inflation rate set to rise further in the coming months, we see no room for a resumption of the easing cycle this year. The decision …
19th June 2024
The US stock market has hit another fresh all-time high, with its ascent is an increasingly lonely one driven by a handful of its constituents. That pattern may be difficult to sustain indefinitely, but we remain optimistic about the outlook for US …
The European Commission’s recommendation to open the Excessive Deficit Procedure (EDP) against Poland, Hungary and Slovakia for breaching the EU’s fiscal rules won’t force a drastic change in policymaking, nor will it deal with the structural factors …
The Monetary Policy Report released by Chile’s central bank today alongside the communications to yesterday’s policy meeting suggest that the easing cycle over the next few quarters will be stop-start. We now expect a pause at the central bank’s next two …
South Africa’s new government of national unity (GNU) will welcome signs that the economy showed signs of perking up at the start of Q2. We think this burst of momentum has further to run, although growth will remain constrained by tight fiscal and …
We expect political uncertainty in France to maintain a floor under government bond spreads in the near term, not only in France but also in other vulnerable euro-zone countries. Further ahead, we see scope for spreads to fall back in Greece, Portugal, …
Inflation unchanged, GNU means rate cuts later this year more likely South Africa’s headline inflation rate was unchanged at 5.2% y/y in May and, while still some way off the 4.5% mid-point of the SARB’s target range, the formation of a government of …
This page has been updated with additional analysis since first publication. Stubborn services inflation still a point of concern for BoE We’ll be discussing the outlook for Bank of England, ECB and Fed policy in a 20-minute online briefing at 3pm BST on …
Drag from net trade will hold back Q2 GDP rebound Trade volumes were little changed in May which suggests that net trade provided a small drag on GDP growth this quarter. The 13.5% annual rise in export values was a touch stronger than the analyst …
The gap between downtown and suburban office vacancy rates has widened alarmingly since 2020. This reflects pandemic-driven changes to working patterns, exacerbated by the cyclical slowdown. In our view, this shift cannot last. While any recovery will be …
18th June 2024
Although the Reserve Bank of Australia (RBA) – which left policy on hold today – looks set to be the last developed market central bank to join the easing cycle now underway among developed economies, we think more important for long-term bond markets …
Strong rise in manufacturing output unlikely to be repeated The strong rebound in manufacturing output in May was better than we expected but, given the softness of the earlier retail sales release, it does not change the big picture that second-quarter …
Soft sales add to signs that consumers are beginning to struggle The soft May retail sales data support our view that, after a disappointing first quarter, GDP growth remains a little lacklustre in the second quarter too. Our forecast now stands at 1.9%. …
Easing cycle slows again, limited room for rate cuts in H2 The communications accompanying the decision by the Hungarian central bank (MNB) to cut its base rate by a smaller 25bp today, to 7.00%, were fairly hawkish and support our view that the base rate …
Data released this morning suggest that May’s surprisingly large jump in euro-zone services inflation may have been due to the most unlikely of culprits: Taylor Swift. So to some extent, the ECB can “shake it off” (apologies). Wage-sensitive inflation …
Overview – Growth in the Gulf economies is likely to pick up in the coming quarters, particularly as oil output starts to rise from October. We think non-oil sectors will continue to grow strongly. But the outlook will become more challenging from 2025 as …
The tightening of fiscal constraints is putting pressure on politicians to pare back green investment ambitions. But kicking the fiscal can down the road on measures that could accelerate the green transition will probably lead to greater macroeconomic …
The Third Plenum may conclude with a pledge of comprehensive reform in areas spanning the private sector, manufacturing, innovation, social security, economic management and more. That may excite hope of substantial change but, in the Party’s eyes, it has …
While the economy has only narrowly avoided a recession, activity should rebound over coming quarters as real household incomes recover. Indeed, with inflation set to remain above the Bank’s 2% target this year and wage growth accelerating, we expect the …
The RBA discussed another rate hike at today’s meeting and an upside surprise to Q2 inflation could force its hand at its August meeting. However, with capacity constraints easing and government rebates pushing inflation into the Bank’s target band by Q3, …
Korea’s economy rebounded strongly last quarter but there are already signs it is losing momentum, and we expect growth to struggle over the coming year. Export growth is likely to ease a little, but the main drag will come from weaker domestic demand, …
RBA’s next move will be a cut but only next year The RBA probably debated another rate hike at today’s meeting and we only expect the Bank to start easing policy next year. The Bank’s decision to keep interest rates unchanged today was correctly …
Housing market still struggling for momentum The housing market was soft in May, with sales and prices edging down, but we expect conditions to improve over the rest of the year as the Bank of Canada cuts interest rates further and mortgage rates decline. …
17th June 2024
We expect the renewed underperformance of small-cap equities vis-à-vis larger ones, which is now near its most extreme in two decades in the US, to continue there over the next year or so. (See Chart 1.) That’s because we suspect that the stock market …
The EU Deforestation Regulation (EUDR) will rejig the way commodity imports enter the EU when it comes into force later this year and could lead to premiums for compliant commodities over non-compliant ones. 1. What is the EUDR? The EUDR is a new …
A persistent feature of the post-pandemic age has been the relative strength of the US economy and equities market. But past performance is no guarantee of future results. Will the US continue to dominate the world economy, and its markets to outperform …
Demand picks up while supply-side falters May’s activity data were a mixed bag with an uptick in retail sales and slowdown in industrial production partially reversing the recent trend of strength on the supply side and weaker demand. Consumer spending …
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 …
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 …
