The new projections published by the Fed this week signalled that officials are fully onboard with the idea of interest rates staying ‘higher for longer’, but that is based on forecasts for real economic growth and inflation which we believe are …
22nd September 2023
Retail sales volumes weakening despite strong population growth Retail sales volumes edged down in July and the preliminary estimate implies they fell even more sharply in August. Given that population growth has accelerated in recent months, retail sales …
We held a Drop-In yesterday to discuss the latest policy meetings of the Fed, ECB, and Bank of England and what they might mean for the future path of policy and financial markets. (See the recording here .) This Update answers several of the questions …
Inflation falls, but Banxico in no rush to cut Mexico’s headline inflation rate came in a little weaker than expected at 4.4% y/y in the first half of September while services inflation remained elevated. Coming alongside strong wage growth and the …
Although EM growth held up well in H1, growth will disappoint over the coming quarters. Recent upside inflation surprises have pushed back the timing of rate cuts in some places, but we expect the EM monetary easing cycle to broaden out in H2. Strong wage …
Loose fiscal policy to support Thai growth Thailand’s new government this week unveiled a budget for fiscal year 2024 (Oct. 2023 – Sep. 2024) which envisages a significant loosening of policy. The centrepiece is a 10,000 baht (US$275) cash handout to all …
Efforts to boost foreign investment are failing In March, the government launched a year-long “Invest in China” campaign to shore up sagging foreign investment. As part of these efforts, it set out 24 measures in August to improve the business environment …
Gov’t achieves long-stated aim of bond inclusion Almost a year on from a high-profile snub , JP Morgan announced on Friday that it would be including Indian local-currency bonds in its GBI-EM Global Diversified Index for the first time. Inclusion will …
After a brief respite earlier this year, property yields are once again on the rise, driven by a further increase in gilt yields. We don’t expect a repeat of the surge seen last year, but we also think any compression beyond this year will be minimal as …
This page has been updated with additional analysis since first publication. Composite PMI edges up but still points to recession The small increase in the euro-zone Composite PMI in September left it still in contractionary territory. We think a further …
Higher inflation lowering deficit and debt/GDP Even though inflation excluding fresh food and energy remained stubbornly high at 4.3% in August, the Bank of Japan didn’t drop any further hints that it might tighten policy anytime soon at its meeting …
The Bank of Japan still sounded dovish when it kept policy settings unchanged today. But with inflation proving stickier than expected, we expect the Bank to lift its policy rate in January and have pencilled in the full-fledged dismantling of Yield Curve …
This page has been updated with additional analysis since first publication. Signs that recession has started all-but confirms interest rates have peaked The fall in the activity PMI further below the boom-bust level of 50.0 in September suggests the …
This page has been updated with additional analysis since first publication. Not as good as it looks, sales likely to fall in Q3 The 0.4% m/m rebound in retail sales volumes in August isn’t as good as it looks as it partly reflected a pickup in sales …
Overview – Both economies have dodged a recession so far, but we still consider it more likely than not that output will shrink across the second half of the year. With inflation softening and labour markets loosening, both central banks are done hiking …
Negative rates will end in early-2024 The Bank of Japan didn’t provide any hints that it will abandon loose monetary policy anytime soon when it kept policy settings unchanged today, but Governor Ueda may do so later today. We think the Bank will lift its …
We now expect the Bank of Japan to hike its policy rate – for the first time in sixteen years – next January. While we think global markets are generally braced for such an event, there’s a clear risk nonetheless that it puts pressure on long-term bonds …
Second-round effects set to be small The minutes of the RBA’s September meeting revealed that the Bank kept discussing another 25bp rate hike. One argument in favour was that the recent rise in petrol prices could make the process of returning to target …
This page has been updated with additional analysis since first publication. Inflation on its way down but price pressures remain Headline inflation fell slightly in August. This was driven by a slowdown in fresh food inflation as well as a further …
We expect long-dated government bond yields in most developed market (DM) economies to fall over the remainder of this year and next, as central banks shift focus to monetary easing. But, in some cases, we now predict those falls to be smaller than we had …
21st September 2023
We think that both the Fed and the BoE are finished hiking interest rates and will cut by more than investors are discounting over the next couple of years. We also expect the US and UK economies to tip into mild recessions before long. These similarities …
Despite ending the interest rate hiking cycle today, the Monetary Policy Committee (MPC) succeeded in convincing financial markets that interest rates will remain high for some time. As market interest rate expectations determine fixed mortgage rates, the …
Despite the hawkish rhetoric from central bankers on both sides of the Atlantic, we still expect most long-dated government bond yields in developed markets (DM) to fall over the next couple of years. After a surprisingly hawkish message from the FOMC …
Overview – Brazil and Mexico will outperform others in the region this year, but that’s likely to flip on its head in 2024 as they slow – and by more than most expect – while the Andean economies recover. Central banks across the region will continue to …
Sales fall back to January lows The 0.7% m/m fall back in existing home sales in August reflects falling mortgage borrowing and took sales back close to the low levels recorded in January. Our view that mortgage rates will remain above 6% for the rest of …
Is Egypt set for the polls before year-end? Reports that Egypt’s presidential election, originally scheduled for 2024, could be held before the end of this year may help to explain the recent policy paralysis with regards to the pound. The National …
The South African Reserve Bank left interest rates on hold today at 8.25% and continued to emphasise that inflation risks remain tilted to the upside, suggesting that it is in no rush to begin loosening policy. Indeed, the SARB is likely to be a …
Note: We’ll be discussing September’s Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm BST today. Register here to join. The surprise decision by the Bank of England to leave interest rates unchanged at 5.25% today probably means that …
Although high “carry” emerging market (EM) currencies have held on to most of their gains during the greenback’s recent rally, we still think the outperformance of these currencies is likely to reverse over the coming quarters amid growing headwinds for …
The bad news around US commercial real estate continues to roll in, but appraisal-based indices have so far only fallen by 10%. How much further do they have to fall, which sectors and regions are most vulnerable, and where is outperformance most likely? …
Commercial construction surveys have shown improving activity in recent months, despite high interest rates and a slowing economy. Our Financial Conditions Indices (FCIs) suggest that might be because market sentiment and credit conditions have, so far, …
CBRT sticks to the course with 500bp hike Turkey’s central bank delivered a 500bp interest rate hike at today’s meeting, to 30.00%, providing further encouragement about policymakers’ commitment to tackling the inflation problem. A lot more tightening …
The SNB’s decision to keep rates unchanged at 1.75% was a surprise. Although the Bank left the door open for further hikes, we think rates are now at their peak. And with inflation set to fall further, we expect the SNB to start cutting rates next year. …
Despite all the talk of “higher for longer”, we believe that the global monetary policy tightening cycle is drawing to a close. In Q4, any final rate hikes in advanced economies will coincide with a number of cuts in emerging markets. And as we head into …
The Bank’s job is done The surprise decision by the Bank of England to leave interest rates unchanged at 5.25% today probably means that rates are already at their peak. We think rates will stay at this peak of 5.25% for longer than the Fed, the ECB and …
Following today’s rate hikes, the Riksbank and Norges Bank are now at, or close to, the end of their tightening cycles. Both central banks’ new projections suggest that they are more likely than not to raise rates one more time. But whether or not they …
Policy easing pushed back to 2024 Taiwan’s central bank (CBC) today left its policy rate unchanged at 1.875% for a second consecutive month. Despite the poor outlook for growth, lingering concerns about inflation have prompted us to shift the timing of …
Early signs of a recovery Poland’s retail sales and industrial production figures for August suggest that the economy may be at the early stages of a recovery, but we still expect overall GDP growth to be relatively tepid in the near term. We think that …
Norges Bank and Riksbank nearly done with rate hikes Following today’s rate hikes, the Riksbank and Norges Bank are now at, or close to, the end of their tightening cycles. Both central banks’ new projections suggest that they are more likely than not to …
Rupiah key concern for central bank Bank Indonesia (BI) today left its main policy rate unchanged at 5.75%, and made clear that supporting the rupiah would remain its main priority over the coming months. While there is still a good chance the central …
SNB goes for a hawkish pause, but we think rates have peaked. The SNB’s decision to keep rates unchanged at 1.75% was a big surprise, although it left the door open for further hikes. We do not expect any further increases in the policy rate as we expect …
BSP unlikely to resume tightening cycle despite inflation concerns The central bank (BSP) in the Philippines today left its main policy rate unchanged (at 6.25%), but warned that it may need to resume its tightening cycle soon. While we think monetary …
This page has been updated with additional analysis since first publication. Note: We’ll be discussing September’s Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm BST today. Register here to join. A bit more wiggle room for pre-election …
This page has been updated with additional analysis since first publication. Strong pickup in growth puts rate hikes back on the table The unexpectedly strong rebound in activity last quarter means that the RBNZ may well judge it has more work to do. All …
20th September 2023
BCB not opening the door to larger cuts The Brazilian central bank’s (BCB’s) 50bp cut in the Selic rate (to 12.75%) and accompanying statement are likely to dash hopes that policymakers will up the pace of the easing cycle, at least in the short term. The …
The Fed doubled down on its mantra that interest rates will remain higher for longer, with its updated projections suggesting that the economy will enjoy the softest of soft landings and core inflation will still take some considerable time to return to …
Fed wants us to believe in “higher for longer” The Fed left its policy rate unchanged at 5.25% to 5.50% and, while the median forecast still shows one more 25bp rate hike this year, the FOMC appears to be more evenly split, with 12 in favour of that hike …
