Geopolitical risk may be ever-present in global commodity markets, but it’s arguably been an even bigger driver over the past year or so. With little sign of an end to conflict in Ukraine and the Middle East, how should investors be gauging the influence …
23rd April 2024
Germany is in crisis. Even as near-term drags on growth are set to fade, its economy is being buffeted by a host of forces that threaten to leave it struggling through the rest of this decade. How will an aging population, high energy costs and a …
A resurgent nuclear power sector in Japan and a continuously growing one in South Korea coupled with an expansion in renewable power capacities will ensure both countries’ LNG demand will fall throughout the rest of this decade. All this supports our view …
South Africa’s upcoming general election looks likely to result in a much more fragmented parliament and mark a shift to coalition government. The lesson from elsewhere in the emerging world is that this can often lead to a worsening fiscal position. …
The rapid expansion in China’s manufacturing capacity of green technology is a symptom of the country’s investment-led growth model and so there is no reason to believe that any change in tack is imminent. Against this backdrop, western governments will …
Weak end to Q1 Poland’s weaker-than-expected activity data for March suggest the risk to our forecast for GDP growth of 2.5% y/y in Q1 (up from 1.0% y/y in Q4) are tilted to the downside. While we maintain our above-consensus GDP growth forecast of 3.0% …
Euro-zone coming out of recession The bigger-than-expected increase in the Composite PMI for April suggests that the euro-zone is coming out of recession, but this will not prevent the ECB from cutting interest rates in June. The increase in the euro-zone …
The UAE’s economy outperformed the other Gulf economies in 2023 and we think that this outperformance will continue this year. While we are still waiting for the full 2023 GDP data from the UAE, we can piece together the data from Abu Dhabi and Dubai, the …
This page has been updated with additional analysis since first publication. Easing services prices may encourage BoE to cut rates in the coming months Although the unexpected rise in the composite activity PMI in April suggests the economy grew faster at …
This page has been updated with additional analysis since first publication. Limited scope for tax cuts March’s public finances figures show that public borrowing in 2023/24 came in £6.6bn higher than the OBR predicted only a month ago, casting further …
This page has been updated with additional analysis since first publication. Activity strong on eve of election The flash composite PMI reading for April suggests that the strength of economic activity over the past few quarters has continued through to …
A week spent visiting client s, contacts and friends in Beijing and Shanghai has underlined the extent of the pessimistic shift in sentiment within China. At first glance, China’s economy is doing fine . The streets of Beijing and Shanghai are bustling …
We now expect services inflation to remain around 2% this year as a fading tailwind from soaring hotel and package tour prices will be offset by stronger labour cost growth. The upshot is that the Bank of Japan will probably lift its policy rate once more …
This page has been updated with additional analysis since first publication. A strong rebound in Q2 GDP is likely The composite PMI continued to rise strongly to a eight-month high in April, suggesting that a strong rebound is on the cards for Q2 GDP …
Stock markets are having a tough start to the quarter, but we think that they will rebound, notably in the US, thanks to renewed enthusiasm about artificial intelligence (AI). While they have bounced back a bit today, equities in the US and elsewhere have …
22nd April 2024
New more granular MSCI data shows that the outperformance of residential property over the past decade was primarily down to student housing. Indeed, only in the past couple of years have multifamily returns exceeded that of all property. But with overall …
A weak labour market and high interest rates will continue to weigh heavily on Korea’s consumer sector this year. The poor prospects for consumer spending is one of the main reasons we think overall GDP growth will remain subdued. Korea’s recovery from …
Recent currency falls and higher oil prices are unlikely to put significant upward pressure on consumer prices across Asia. We continue to expect inflation in the region to remain low over the coming year. Consumer price inflation has fallen back sharply …
The past few weeks have brought a flurry of data and speeches from central bankers. What have we learned about the health of the global economy and the outlook for monetary policy? It’s important not to place too much weight on a single data point, …
Despite another large y/y fall in green technology export values from China in March, falling solar panel and battery prices mean that China’s export volumes of the so-called “New Three” were close to the peak recorded in September 2023. After the 12.8% …
Bank will probably revise up its inflation forecasts at upcoming meeting Ueda sounds keen on another rate hike However, window for tightening is closing as underlying inflation set to fall below 2% Governor Ueda sounds keen in tightening policy further …
Financial markets have largely taken the latest escalation in the Middle East over the past week in stride. Having spiked from $87pb to $90pb on the news of today’s attack, Brent crude oil has now fallen back to below $88pb. Similarly, the big moves in …
19th April 2024
Protectionism seen as a vote winner by both parties After Fed Chair Jerome Powell acknowledged this week that there has been a “lack of further progress” on lowering inflation this year, markets dialled back rate cut expectations, with the first 25bp …
Will the naira’s rebound last? The sharp recovery in the naira in recent weeks has been somewhat of a surprise and it has come at the expense of a steep decline in FX reserves. Without substantial improvements in the current account position or capital …
All nine constituents of the S&P 500 diversified banks index have now released their earnings reports for Q1. While the performance of their shares has typically been underwhelming of late, in some cases that can be only partly attributed to the lukewarm …
GDP breakdown points to stronger services activity The better-than-expected Q1 GDP figures released earlier this week added to wider evidence that the economy has regained some momentum recently. The detailed sectoral breakdown, published a day after the …
In a week that started with Iran’s drone and missile attack on Israel and which ended with Israel’s retaliatory strike on Iran , it is somewhat surprising that the price of Brent crude fell by over 3% w/w. It would be easy just to explain the move by …
Budget 2024 made a bit of a splash thanks to the unexpected changes to capital gains taxes, but we do not think the new net spending measures were large enough to change the outlook for GDP growth or interest rates this year. The encouraging March CPI …
Currency falls another headache for central banks The reassessment of interest rate expectations in the US combined with tensions in the Middle East has put substantial downward pressure on EM currencies this week, with some in Latin America hit …
Tensions increase, but hopes for de-escalation Tensions between Israel and Iran ratcheted up this week as both sides launched military strikes at one another, raising concern about a broader regional conflict. (Read our research here .) Following Iran’s …
Movements in the exchange rate tend to have only a small impact on euro-zone inflation. So while the euro might weaken if monetary policy in the euro-zone and US were to diverge, we think it would take a big move in the exchange rate to have a significant …
Note: We’ll be discussing the outlook for monetary policy in the euro-zone in a Drop-In on Thursday, 25th April. Register here for the 20-minute online briefing. The financial news this week has been dominated by the potential impact of the Middle …
In this latest episode of The Weekly Briefing from Capital Economics, Group Chief Economist Neil Shearing assesses just how much the global inflation picture has really changed in the wake of that US March CPI print. He talks to David Wilder about which …
Worries about the currency Bank Indonesia is the only central bank in emerging Asia that has a mandate to ensure currency stability. It surprised markets (and us) when it raised interest rates to support the rupiah at its October meeting. With the …
Higher Treasury yields, a resilient US economy, and relatively low valuations are three reasons why we now think that the future for US banks in general is a bit brighter. The share prices of banks in the S&P 500 have underperformed the overall index …
In the previous Weekly we said “the risks are tilted towards inflation proving sticker and rate cuts happening a bit later”. This week’s global and domestic events have left our forecast that interest rates will first be cut from 5.25% in June and will …
BJP on course for another big win The biggest (and most expensive) vote in history commenced today as India started voting in its general election. Almost a billion people are eligible so given the daunting logistical challenge, voting will take place …
Its peers may be looking less likely to do so, but we think the European Central Bank is still on track to start cutting rates at its June meeting. While the timing of that first cut may now be baked in, we don’t think the market is correctly pricing just …
Reports suggest that Israel has fired missiles into Iran in response to Iran’s strike on Israel last weekend. Details remain unclear, but the key questions for markets relate to the scale of the attack and the damage caused, and the likelihood of …
This page has been updated with additional analysis since first publication . Retail outlook still bright despite sales stalling in March Although retail sales volumes remaining unchanged in March was worse than expected (consensus forecast +0.3% m/m, CE …
The economy rebounded during the first quarter but we continue to expect the economy to grow below trend this year as a whole. Elevated interest rates, a cooling labour market, soft foreign demand and tighter fiscal policy are all likely to curtail …
We’ll be discussing what a stronger-for-longer dollar means for the Japanese policy outlook and the yen in a 20-minute online briefing at 9am BST/4pm SGT on 26th April . (Register here .) Yen falling to fresh low but no intervention yet The yen …
RBNZ to watch and wait for longer On Wednesday we learnt that inflation in New Zealand moderated from 4.7% in Q4 to 4.0% in Q1. At first glance, that outturn was only a touch stronger than the 3.8% the RBNZ had predicted. However, the details of the CPI …
Inflation should receive a boost in mid-year Inflation moderated slightly in March, in line with the consensus and our forecasts. If inflation continues to move in line with the BoJ’s projections, further rate hikes may be on the cards this year. Headline …
Despite the ongoing surge in long-term government bond yields, the US yield curve remains inverted. As such, it is worth revisiting what the implications are for financial markets, and how this episode differs (or not) from previous curve inversions. As …
18th April 2024
Even if mortgage rates fall to 6.5% this year as we expect, homeowners will still be discouraged from listing their home, ensuring supply remains tight. At the same time, mortgaged buyer demand should pick-up as affordability improves. That will drive …
Investors are no longer pricing in a 50bp interest rate cut at the Brazilian central bank meeting next month, despite the forward guidance at the March meeting signalling such a move. While we think it’s too early to throw in the towel on a 50bp cut, a …
Gulf find itself in a bind if conflict escalates The ratcheting up of tensions in the Middle East between Iran and Israel over the past couple of weeks has raised concerns about a broader regional conflict. For now, though, it seems unlikely that the Gulf …
The continued weakness in the German economy that we expect over the rest of this decade presents a challenge to the export-orientated economies of Central and Eastern Europe (CEE). While GDP growth is likely to be slower in CEE over the coming years than …
