Japan’s government has intervened in the FX markets to weaken the yen far more often than to strengthen it. But FX interventions have become very rare over the past two decades and our sense is that the government is welcoming a stronger exchange rate in …
6th August 2024
With RBA retaining its tightening bias, rate cuts will have to wait Although the RBA continued to strike a cautious tone when it left rates on hold today, we still believe that the Bank’s next move will be down. That said, contrary to market pricing, we …
Strong wage growth adds to case for further BoJ tightening The enormous rise in labour cash earnings in June was mostly driven by a jump in summer bonus that won’t be sustained, but the figures clearly point to another BoJ rate hike later this year if the …
The outbreak of political violence and the sudden resignation of Prime Minister Sheikh Hasina has rocked Bangladesh today. But provided that peace and stability is restored relatively soon, the economy is unlikely to suffer major long-term effects. Sheikh …
5th August 2024
We doubt the AI-fuelled rally in global equities has burst, despite a rout in the stock market in the US after some disappointing data there last week and a plunge in Asian indices today . It feels less like 2000 – when the dotcom bubble popped – than …
Despite the weakness of the latest labour market data, we judge that a soft landing is still the most likely outcome for the economy. Nonetheless, the risk of a hard landing has increased, while the disorderly market reaction – if sustained – could prompt …
Tourism in the euro-zone is likely to continue growing at a decent pace over the coming quarters due to rising real wages and increased capacity. This will be a particular boon to the southern economies, which in general we think will continue to grow …
Rise in ISM services index should soothe recession fears The rebound in the ISM services index to 51.4 isn’t much to get excited about given it remains weak, but the corresponding increase in the employment index should soothe concerns that the labour …
The impact of the cost-of-living crisis, which has been weighing on London industrial take-up, has a bit further to run. But London is well-positioned to benefit from the rise in consumer spending we expect from 2025. Coupled with supply constraints, …
So much for the summer lull. Stock markets are in turmoil and bond yields have plunged as fears about a US recession have taken hold. For all the challenges in gauging where economies and markets are heading amidst massive spikes in volatility such as we …
Fears of a US recession have rattled EM equity markets at a time when EM economies themselves are showing more pronounced signs of weakness. Most EM currencies have held up well, suggesting a dovish tilt may come from EM central banks – particularly those …
Non-oil sectors in the Gulf continue to cool This response has been updated with additional analysis, including of Qatar's PMI. July’s batch of PMIs were softer across the board, adding to signs that activity in private non-hydrocarbon sectors in the Gulf …
Fears about US recession are fuelling volatility in financial markets, sending stock prices and bond yields sharply lower. But how justified are these fears? And do moves in asset prices point to a fundamental shift or a temporary blip in the market …
The yen surged today, and some Asian equity indices plunged, as investors worried about a “hard landing” in the US economy. We think there are two key questions to consider. First, could the yen rally any further? It has now surpassed our long-held …
Disinflation process underway, but it will take time The large fall in headline inflation in Turkey in July will provide some comfort to the central bank that the disinflation process remains on track, although it will take time for policymakers to be …
The national accounts data released today suggest that economic growth remained broadly stable last quarter, but we don’t have much faith in the official data. With economic activity set to weaken in the coming quarters, and concerns about inflation …
While faster wage growth should eventually result in a significant pick-up in rental inflation, it seems likely that rental growth will trail income growth for the foreseeable future. That means that the Bank of Japan will have to let the economy run …
Renewed fears of a US recession have increased the chances of additional rate cuts from the Fed. But we don’t think that the US economy will stand in the way of an equity rally for much longer. The US Employment Report for July released today seemingly …
2nd August 2024
Between a dovish message from the FOMC on Wednesday and a shockingly weak non-farm payrolls report today, the dollar is ending a turbulent week on the back foot. US interest rate expectations have seen a massive drop as recession fears now appear to have …
The data this week suggested that second-quarter GDP growth was a touch stronger than expected at 2.1% annualised. We expect higher oil export capacity and strong immigration to prevent a sharp slowdown this year, but with neither tailwind preventing …
With that grim July payrolls report triggering fresh selling in US stocks and bond buying on Friday, Group Chief Economist Neil Shearing and Deputy Chief Markets Economist Jonas Goltermann join David Wilder to talk about whether there's anything to …
Labour market cracks raise risk of hard landing Things went from bad to worse after the Fed’s policy announcement mid-week, with the data on Thursday revealing a further fall in the ISM manufacturing index and a rise in initial jobless claims to a near …
We will be holding a Drop-In next Thursday at 15.00 BST discussing financial risk across the EM world. Register for the 20-minute online briefing here . Nigeria turns back to Ways and Means facility Nigeria’s government raised the limit of its Ways and …
The US dollar has remained rangebound against most other major currencies in July, even as expected interest rates have fallen sharply in the US in the wake of softer inflation and employment data. That reflects falling interest rate expectations …
This week was a good example of a “hawkish cut” from the Bank of England. The cut bit; the first 25 basis point (bp) fall in interest rates since March 2020. The hawkish bit; the Bank stated very clearly that it doesn’t expect to cut rates too much or too …
We will discuss our latest EM Financial Risk Monitor in a Drop-In next Thursday. Register here for the 20-minute online briefing. By hook or by crook The declaration that incumbent Nicolás Maduro won Venezuela’s presidential election was met with …
We will be holding a Drop-In next Thursday at 15.00 BST discussing financial risk across the EM world. Register for the 20-minute online briefing here . Tensions in the Middle East rising after Israeli strikes The rocket strike on the Israeli-occupied …
China’s economy has slowed recently but we think it will regain some momentum during the second half of the year. Consumers remain cautious and the housing market continues to weaken. But exports look set to stay strong for a while longer. And the …
The oil market's fairly muted reaction to events in the Middle East this week only temporarily reversed the recent downward trend in oil prices. On the face of it, however, the risk of a spike in oil prices which would likely arise from a more direct …
We've been here before We wouldn’t take Tuesday’s pledge from the Politburo to tilt stimulus towards consumption at face value. The leadership called for policies to lift incomes and enhance the capacity and willingness of low- and middle-income groups to …
This week saw the publication of a raft of activity and inflation data for the euro-zone. There are two key takeaways in our view. First, the economic recovery remains fragile. Admittedly, GDP expanded by a solid 0.3% q/q in Q2, the same pace as in Q1. …
Soft landing in doubt as labour market cracks The sharp slowdown in payrolls in July and sharper rise in the unemployment rate makes a September interest rate cut inevitable and will increase speculation that the Fed will kick off its loosening cycle with …
In its new urbanisation plan, China’s government is setting its targets low . The goal of reaching a 70% urbanisation rate in five years’ time could be met with far smaller increases in the urban population than have been seen in the past few years. And …
Given that we broadly share investors' view about how far DM central banks will ease monetary policy this year and next, we forecast government bond yields in most developed markets to end 2024 close to their current levels. Meanwhile, we think investors …
Bank of Korea to wait until October to cut rates Korean GDP figures published last week showed that the economy contracted in the second quarter, and monthly data for June and July published this week confirm that the economy is struggling. Although …
Bond restrictions highlight investor wariness The Reserve Bank of India (RBI) this week announced restrictions on foreign investment on all newly-issued 14-year and 30-year local-currency sovereign bonds. Effective immediately, foreigners will now only be …
Near-term outlook for consumption brightening As we had anticipated , the Bank of Japan’s decision to halve its JGB purchases over the next couple of years didn’t deter it from also raising interest rates further at this week’s meeting . Press reports …
This publication has been updated with additional analysis. Headline inflation steady and to remain around current level for the rest of the year. Switzerland’s inflation rate was unchanged in July at 1.3%, keeping it below the SNB’s Q3 forecast of 1.5%. …
RBA will remain data dependent The main event this week was the publication of Australian CPI data , which showed that underlying inflation in Q2 was softer than most had anticipated. To be clear, trimmed mean inflation was only 0.1%-pt lower than the …
Financial markets have largely taken the dramatic events in the US presidential race over the past month in stride. While the race now appears to be back to a coin toss, the prospect of a second Trump term remains the key uncertainty – a Harris presidency …
1st August 2024
The latest manufacturing PMIs suggest that global industrial activity slowed sharply at the start of Q3, and that activity will probably slow further. But weaker activity hasn’t taken the heat out of price pressures in advanced economies, meaning that …
The sharp fall in the EM manufacturing PMI suggests that the recent strength of industry may not be sustained in Q3. The declines in the PMIs were broad-based, although they are still relatively high in most of Asia. The PMIs also provided encouraging …
Bond yields have fallen in the US and the UK after the Fed signalled an imminent rate cut and the Bank of England delivered one. But only in the UK do we see more room down for yields. US Treasury yields have fallen further following the Fed meeting …
Regional tensions rise after Israel strikes Israel’s assassination of high-ranking Hezbollah and Hamas officials this week in retaliation for the rocket strike on Israeli-occupied Golan Heights has left tensions on the brink of boiling over. An aggressive …
This is a revamped version of our quarterly Financial Risk Monitor to include commentary and analysis of our latest EM risk indicators. Currency risks continue to ease, fiscal risks remain moderate Financial vulnerabilities have continued to ease across …
How has the level of financial risk evolved among emerging markets over the past three months? Where have improvements been most notable across sovereign, banking and FX risk? Among more than 30 of the biggest EMs, where do vulnerabilities appear most …
Manufacturing struggling for momentum The further decline in the ISM manufacturing index in July raises the risk that GDP growth will lose momentum in the third quarter, and the plunge in the employment index will add to concerns that the Fed has left it …
The Bank of England kick-started a loosening cycle today by cutting interest rates from 5.25% to 5.00%, but the accompanying guidance and forecasts suggest it will proceed cautiously. Accordingly, we suspect the Bank will keep rates on hold in September …
CNB slows easing cycle, but rates will still fall further than many expect Czech National Bank (CNB) Governor Michl sounded fairly cautious in his guidance about the future course of the easing cycle in the post-meeting press conference. But the …
