There were more mixed signals this week on how the economy is coping with higher interest rates. The GDP data suggest fourth-quarter growth was stronger than initially expected and the manufacturing PMI unexpectedly rose back into expansionary territory …
3rd February 2023
Survey data point to weak start to 2023 Data published this week provided the first signs of how the region’s economies fared at the start of this year. And it’s not good news. In Brazil, the FGV confidence indicators all dropped back in January, with …
ISM suggests strong start to the year in services The rebound in the ISM services index to 55.2 in January, from 49.2, reversed almost all of the sharp drop in December and leaves our composite ISM index at a level usually consistent with GDP growth of …
Robust payrolls not preventing wage growth slowdown The robust 517,000 gain in non-farm payrolls in January means that, despite most leading indicators of recession flashing red, the economy is clearly not as close to recession as we had suspected. …
While the Bank of England raised interest rates by a further 50 basis points (bps) yesterday, from 3.50% to 4.00%, it hinted that if Bank Rate is not already at a peak, it is very close to one. As we unpacked in our “Drop-In” webinar on this week’s policy …
With the dust now settled after yesterday’s ECB meeting, it is clear investors have stuck with their dovish interpretation of the decision. They now expect the deposit rate to peak at around 3.4%, rather than 3.6%. (See Chart 1.) Meanwhile, 10-year …
Weak start to the year in Korea Recent economic data from Korea paint a depressing picture. GDP figures published late last month showed the economy contracted by 0.4% q/q at the end of 2022 – the third worst quarterly performance since the Asian …
While some of the measures unveiled in the FY23/24 Union Budget are geared towards shoring up popular support ahead of next year’s general election, there is a clear long-term focus too. The projected jump in capital expenditure, cuts to import duties on …
Australia’s house prices are still falling rapidly and there is no bottom in sight. According to CoreLogic, prices in the eight capital cities fell another 1.1% m/m in January – the same pace of decline as in each of the three months before. That took the …
Industry leads Brazil’s slowdown The stagnation in Brazilian industrial production in December is consistent with a 0.5% q/q fall in output over Q4 as whole, indicating that the sector was a drag on the economy. And the early signs are that January was no …
As we argued in our latest Riksbank Watch , the fact that Sweden’s inflation rate rose more than expected in November and December is a key reason why we expect policymakers to raise rates by 50bp next week. But looking further ahead, we are …
Despite some better news recently, we still think that advanced economies face a tough couple of quarters, an outturn which does not seem to be fully discounted in financial markets. With this in mind, our view remains that risky assets in general will …
The EU’s imminent ban on Russia’s refined oil may see EU prices rise, but major disruption is unlikely. Even so, Russia will find it more difficult to find new buyers for its refined oil than it did with crude. The EU will need to find alternate supplies …
2023 fiscal boost still on its way December’s Central Economic Work Conference called for stepped-up fiscal support this year. On-budget borrowing, a timely proxy for fiscal policy, has since picked up slightly. But officials still have work to do. Net …
In the latest of our Election Watch series ahead of Nigeria’s polls, we dissect the near-term economic challenges facing the next administration. Boosting oil production, overhauling the foreign exchange regime and placing the public finances on a more …
The rise in yields in the final quarter of last year was larger than that seen at the start of the GFC. While the magnitude of the rise can be explained by the jump in risk-free interest rates, the speed of the repricing has been a surprise. The surge in …
The Central Bank of Egypt (CBE) surprisingly left interest rates unchanged at Thursday’s MPC meeting but, with inflation likely to rise even further above the central bank’s target, we still think that policy will be tightened further. We have pencilled …
Price pressures intense in the services sector Today’s final PMIs confirmed that economic activity in the euro-zone as a whole continued to roughly stagnate in January but picked up in Italy and Spain. They also show that inflationary pressures remain …
The global supply of platinum group metals is likely to be increasingly strained by electricity shortages in South Africa. This poor supply outlook is a key reason why we forecast the prices of these metals to remain high over the next year or so, even as …
Spill-overs from the Adani crisis limited, for now Though the FY23/24 Union Budget provided some respite, the short-seller attack on the Adani Group following the publication of a report by US-based Hindenburg Research alleging “brazen stock manipulation …
Regional utilities seek electricity rate hike Seven regional utility companies (of 10 in total) that together serve around 60% of Japan’s population have now applied to the government to raise the rates on their regulated electricity contracts with …
We’ve received a lot of questions recently about the impact of China’s re-opening on EMs, including at our monthly Drop-in today. This Update answers three key questions on the winners and losers, the inflationary impact and the outlook for EM financial …
2nd February 2023
We expect growth in US payrolls in January continued to slow (13.30 GMT) ISM Services Index likely to be consistent with mild US recession (15.00 GMT) We held a Drop-In on the Fed, ECB & BoE today – clients can catch up here Key Market Themes Despite …
The hawkish tone struck by the Czech National Bank (CNB) as it left its policy rate on hold again today, at 7.00%, isn’t prompting us to abandon our view that rates will be cut around the middle of this year. That said, we have now pushed the timing of …
Whereas the Bank of England and (arguably) the Fed delivered dovish surprises over the past twenty four hours, we think the ECB decision did not amount to a clear change of policy stance. The ECB is still likely to raise its deposit rate from 2.5% today …
The reversal of China’s zero-COVID policy means Chinese tourists could return to European high streets sooner than expected. While this should help support occupier demand, it seems unlikely it will be sufficient to offset weakness in domestic spending. …
Proof will be in the pudding for Egypt’s privatisation Egypt’s Prime Minister Mostafa Madbouly revealed this week that twenty state-owned companies would be sold over the course of this year which adds to the positive momentum on reforms. It remains to be …
The suggestion by Brazil’s President Lula that the central bank’s inflation target should be raised is likely to be a bigger concern for the second half of his presidential term (2025-26) than the first half (2023-24). While Lula seems to be motivated by …
Resurgence in productivity and fading ULC growth add to disinflationary pressures Non-farm labour productivity rebounded by 3.0% annualised in the fourth quarter, which means that, despite Fed Jerome Powell’s insistence at yesterday’s press conference, …
While raising rates by 50 basis points (bps) today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but perhaps via two 25bps increases rather than one 50bps rise. …
Dovish pivot coming soon The Czech National Bank (CNB) delivered no surprises in leaving its policy rate on hold again today, at 7.00%, but we maintain our view that it will cut interest rates a bit more quickly than most others expect. Our current …
Peak rate still some way off Whereas the Bank of England and (arguably) the Fed delivered dovish surprises over the past twenty four hours, we think the ECB’s statement does not amount to a clear change in the policy stance. The 50bp hike today was almost …
Our view that the stock market in China will continue to recover in the coming months even as its counterpart in the US falters ahead of a mild recession there raises the question of how equities elsewhere would fare. This Update attempts to shed some …
Rates closing in on their peak, but rate cuts unlikely to come until 2024 While raising rates by 50bps today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but …
EM banks will face an increase in loan losses this year, but the good news is that banking sectors on the whole appear well-placed to absorb these, particularly in parts of Latin America, Emerging Europe and the MENA where capital buffers are high. That …
With inflation and price pressures still high, the Riksbank will probably raise interest rates by 50bp next week. However, in contrast to the market, we think this will probably end the tightening cycle and are bringing forward our forecast for a first …
MPC to mark end of tightening cycle with 25bp hike to repo rate (to 6.50%) next week Slower growth and inflation could mean MPC is laying groundwork for cuts before long Rate cuts to materialise in early 2024, sooner than consensus expects With …
The statement accompanying yesterday’s Brazilian central bank meeting, at which the Selic rate was left at 13.75%, hinted that interest rates may need to stay at their current high level into next year. We recently pushed back the timing of the first rate …
As expected following a blitz of speeches by officials ahead of the blackout window, the Fed raised its policy rate by a smaller 25bp, to between 4.50% and 4.75%, but tempered any hopes of a major dovish shift by maintaining the language in the statement …
1st February 2023
Fed sticks to its guns, but shifting data suggest hiking cycle almost done As expected following a blitz of speeches by officials ahead of the blackout window, the Fed raised its policy rate by a smaller 25bp, to between 4.50% and 4.75%, but tempered any …
Slow refinery rebound continuing to boost commercial crude stocks Commercial crude stocks continued to climb last week as refinery activity remained in the doldrums and net imports rose. We believe that a recovery in refinery activity and higher demand …
Despite the rebound in JOLTS job openings in December, voluntary quits fell slightly and point to a further moderation in both wage growth and PCE core services (ex housing) inflation. Job openings rebounded to 11.0 million in December, from 10.4 …
The manufacturing PMIs picked up in most emerging markets in January, offering hope that the worst for EM industry may have now passed. But activity remains soft against the backdrop of high interest rates and weak global external demand. The aggregate …
The latest manufacturing PMIs suggest that output has continued to weaken, although the pace of contraction is slowing in several economies. Product shortages have diminished further at the global scale, and weakening demand is also allowing price …
Canada has built fewer new homes relative to population growth than other advanced economies, but this alone cannot explain the much larger rise in house prices during the last decade. Looser credit conditions have played the dominant role by far, with …
Another recession signal flashing red The further fall in the ISM manufacturing index to 47.4 in January, from 48.4, suggests that the factory sector has yet to benefit from the improvements in manufacturing prospects in Europe and China. In particular, …
The slowdown that we expect in Brazil’s economy should take some steam out of the labour market, but it looks like it won’t be enough to stop wages from rising at a rapid pace. This appears to be a bigger risk to the inflation outlook than the fiscal …
The Fed will probably deliver a smaller 25bp hike, pushing the FFR to 4.50%-4.75% (Wed.) We think strong recent data will prompt the BoE to raise rates by 50bp, to 4%... (Thu.) …while the ECB will increase its deposit rate by 50bp to 2.5%, as signalled …
