Market implied rates suggest that investors expect inflation to normalise in the US and Europe in the next couple of years. While we share that view, we think they are overestimating the level of policy rates required to achieve inflation targets. As a …
8th September 2023
Christine Lagarde and her colleagues will have some new and gloomy data releases to contemplate when they gather in Frankfurt next week. First, revised data published on Wednesday show that the euro-zone eked out only a 0.1% increase in GDP in Q2 as …
This page has been updated with additional analysis since first publication. Rebound in hiring should ease recession concerns The rebound in employment and larger increase in hours worked in August suggest the economy bounced back following some of the …
The recent rise in oil prices to $90 per barrel means CPI inflation is likely to rise from 6.8% in July to 7.1% in August, but it won’t prevent inflation falling to the 2% target by the middle of next year. Even if oil prices climbed to $100 per barrel, …
The UK government’s failure to award any new offshore wind-power contracts in its latest procurement round ultimately stems from bean-counting stinginess and is nothing that a lot of extra government investment won’t fix. But with the days of ever-cheaper …
The decision by the National Bank of Poland (NBP) to kick off its easing cycle this week with a much larger-than-expected 75bp interest rate cut has been heavily criticised, and suggests to us that policymakers are underestimating the challenge of …
Having remained resilient over the past months, inflows into EM bonds and equity markets have turned negative in recent weeks. Inflows into Turkey have weakened despite August’s sharp interest rate hike and while India has continued to see notable …
Geopolitics loom large over New Delhi showcase Following the success of the Chandrayaan-3 mission to the south pole of the moon in August, this weekend’s G20 summit in New Delhi will undoubtedly be presented as another foreign policy triumph by the BJP as …
Headline inflation jumps in August The long and steady decline in inflation across Emerging Asia came to an end last month, with headline inflation picking up in all six countries that have so far reported August price data. (See Chart 1.) Chart 1: …
Huawei's chip breakthrough The launch of Huawei’s new phone, the Mate 60 Pro, has sparked a debate over the effectiveness of US export controls that were tightened last year, restricting the sale to China of machinery needed to produce sub-18nm chips. The …
Consumption set to slow further The 0.4% q/q rise in Q2 GDP was a touch stronger than the RBA’s August estimate of 0.2%, but the more important question is what the figures mean for the outlook for the economy over the coming quarters. On past form, the …
MoF signaling some concern over weaker yen As the yen weakened to nearly 148 against the dollar this week, the government has signalled its readiness to intervene in foreign exchange markets to stop its slide. Masato Kanda from the Ministry of Finance …
This page has been updated with additional analysis since first publication. Wage growth should moderate as inflation cools While the sharp slowdown in wage growth in July wasn’t as bad as it looks, it suggests that above-target inflation won’t prompt …
Note: We’ll be discussing the ECB September rate decision – along with those of the Fed and the Bank of England – in a ‘Drop-In’ on Thursday, 21 st September. Register here to join the online briefing. We think the ECB is slightly more likely to hike than …
7th September 2023
Although the Canadian dollar has held up relatively well among G10 currencies, we think it will weaken in the coming quarters as investors discount a more dovish policy path for the Bank of Canada (BoC). Despite the broad-based strength in the US dollar …
A “soft landing” for the economy in the US seems increasingly possible, so we look back at previous similar episodes to get an idea of what might be ahead for equities there. Despite the Fed’s aggressive tightening cycle over the past year and a half, it …
Emerging market (EM) easing cycles are underway in earnest even as the first Fed cut remains a while away. We think this easing will help to drive EM local-currency (LC) government bond yields lower, in general, over the rest of 2023. But we still expect …
Recent patterns in the US stock market are sending mixed signals about the extent to which investors are braced for an economic downturn. Our own view is that equities will struggle to make more headway this year – even if the economy avoids an outright …
Saudi oil output cut rollover a significant GDP hit Earlier this week Saudi Arabia confirmed that it will extend its additional voluntary 1mn bpd oil output cut until the end of this year which will result in a significant hit to economic growth this …
We think that the positive impact of lower inflation on households’ real incomes in the coming quarters will be offset by weaker employment and nominal wage growth. As a result, we don’t think that lower inflation will drive a recovery in real consumer …
With affordability stretched and the economy slowing, housing market activity is expected to remain weak over the coming quarters. While we expect house prices to lose some of their recent momentum, the worst of the correction appears to have passed and …
China’s commodity import volumes rose strongly in August compared to July. Crude oil imports were probably supported by the ongoing recovery in the aviation sector, which we expect to continue in coming months. But greater enforcement of steel output …
Will the FOMC’s September meeting confirm that the Fed is done with tightening? Will the ECB and Bank of England take rates higher? Will accompanying language give any hints about how long rates will stay elevated? Economists from our US, Europe and UK …
The UK government’s decision to block Marks and Spencer’s (M&S’) re-development of its flagship store highlights the challenges in the transition to net zero. In particular, while authorities are using regulation to force owners into greener choices, if …
Developments in the past few weeks have moved the dial somewhat on the global story. In major DMs, there have been more signs of activity softening either in terms of output or employment, evidence of disinflation continues to mount, and it has become …
Reports are swirling of yet more delay to the latest review of Egypt’s IMF deal, the central bank is preparing to meet in a pressurised market environment and speculation about a sovereign default isn’t going away. Deputy Chief Emerging Markets …
Inflation falls again, but Banxico to stay focussed on sticky services inflation Mexico’s headline inflation rate edged down again in August, to 4.6% y/y, on the back of softer core price pressures but, with services inflation still proving stubborn, …
According to Halifax, house prices are up by 20% compared to 2019 even after their recent falls. But adjusted for inflation they slipped to a seven-year low in August. High mortgage rates point to a further fall in prices in both real and nominal terms. …
The Budapest office market has underperformed in recent years, with rents lagging the rest of the region. While some weakness is likely for the rest of this year, the outlook is improving. With a more limited supply pipeline and improving demand, Budapest …
Stagnant in Q2, likely to contract in Q3 The downward revision to the euro-zone’s second-quarter GDP data means the economy is now thought to have essentially flat-lined since the fourth quarter of last year. With business surveys having turned down …
This page has been updated with additional analysis since first publication. The decision by Malaysia’s central bank (BNM) to leave the overnight policy rate unchanged at 3.0% came as no surprise. Despite the poor near term outlook for economic growth, …
Largest annual fall since 2009 The steep fall in the Halifax House Price Index in August confirmed that the further leg down in house prices we have been forecasting has materialised. If we are right to think that mortgage rates will remain around current …
Fall in German industrial production even worse than it looks Aggregate German industrial output fell sharply again in July and the fall was even larger if the construction and energy sectors are excluded. We expect production to drop further in the rest …
This page has been updated with additional analysis since first publication . Export volumes are likely to soften before long China’s export values continued to contract in August, but this mostly reflects lower prices. Export volumes continued to hold …
Net trade set to become a drag on Q3 GDP growth Following the sizeable 0.8%-pts boost to GDP growth in Q2, the July trade figures suggest that net exports will provide a drag in the third quarter. The trade surplus fell from a downward-revised $10.3bn in …
M1 narrow money continues to contract at a double-digit annual pace, as higher interest rates temper demand for low-return deposits. Broader money growth is not faring quite as badly, since higher rates are also boosting demand for savings deposits and …
6th September 2023
China’s announced support for the property sector and the extent of fiscal stimulus is modest, but it will help to support base metals demand in the coming months. Accordingly, we expect prices to tread water over the rest of 2023. Prices should rise in …
Higher interest rates lead to forecast downgrades The latest IPF Consensus Survey showed a reversal of last quarter’s forecast upgrades, bringing the consensus view more in line with our own. The surge in interest rates thanks to high inflation is behind …
The more cautious tone of the Monetary Policy Report released by Chile’s central bank today supports our view that, once the large falls in inflation are behind us in early 2024 and the economy recovers, the easing cycle is likely to shift down a gear. We …
Excluding China, aggregate EM GDP growth held up surprisingly well in Q2. That said, we think growth will weaken in most major economies in Q3 and remain subdued over the coming quarters before a modest recovery takes hold in the second half of 2024. Our …
The Bank of Canada accompanied its decision to leave interest rates unchanged with a pledge to hike again if needed, but we doubt it will need to follow through. With recession risks rising and labour market conditions loosening, we continue to think that …
The worsening economic growth backdrop suggests to us that interest rate expectations for cyclically sensitive developed market (DM) economies are too high. We expect them to fall and drag bond yields sharply lower over the next couple of years. Earlier …
The higher share of floating rate mortgages in Italy and Spain means that household interest spending in both countries has risen much further than in Germany and France. Interest spending is also set to keep rising much more quickly in Italy and Spain in …
The latest real estate data suggest that the current drop in capital values in the euro-zone will be as bad as the post-GFC correction. But market sentiment has been less negative this time, particularly for occupiers, which we think largely reflects the …
Bank maintains hawkish bias, but next move likely to be a cut The Bank of Canada accompanied its decision to leave interest rates unchanged with a pledge to hike again if needed, but we doubt it will need to follow through. With recession risks rising and …
Modest rise leaves index at subdued level The rise in the ISM services index to a six-month high of 54.5 in August, from 52.7, is a further sign that activity growth is holding up in the third quarter. That said, a weighted average of the two ISM surveys …
Energy prices will remain historically high over the remainder of this year. OPEC+ output cuts, which have kept the oil market constrained, will continue until the end of the year, while demand in the US and China has held up. The natural gas market …
The German government is unlikely to announce the kind of big stimulus package that some are calling for. However, fiscal policy will remain much more supportive than it was before the pandemic. The German economy has struggled since the pandemic. In Q2, …
South Africa’s economy has one of the weakest growth records of any EM over the past decade and its post-pandemic recovery has been particularly disappointing. At the heart of the problem are major structural impediments to growth that stretch far beyond …
NBP starts it easing cycle with a bang The National Bank of Poland (NBP) kicked off its easing cycle today with a much larger-than-expected 75bp cut to its main policy rate, to 6.00%. We will firm up new interest rate forecasts after Governor Glapinski’s …
