Fiscal support may not prevent Q2 contraction Governments stepped up policy support this week to protect against the surging cost of living and, while the measures should help to shield households and firms from surging inflation, we don’t think they will …
14th April 2022
Upside risks to inflation are materialising We’ve been arguing for several months that both the consensus and the RBI have been underestimating the upside threats to inflation. Consumer price data for March released this week have reinforced our view. The …
Economy still reeling from virus disruptions The PMIs pointed to the second-largest contraction in service sector activity on record in March. And the high-frequency data that we track suggest that conditions have deteriorated further so far this month. …
Ban on Russian coal won’t lift energy prices Prime Minister Kishida’s decision last Friday to follow the EU in banning imports of Russian coal is unlikely to put much additional upwards pressure on Japanese energy prices. To be sure, Japan is the world’s …
Labour market tightening, inflation surging The Reserve Bank of New Zealand’s 50bp rate hike on Wednesday was in line with our forecast and financial market pricing, but defied the analyst consensus of a 25bp hike. We’ve pencilled in another 50bp hike in …
The government used its 2022 Budget to set out a host of proposals to make housing more affordable for Canadians, but the impact of these measures on house prices will be far overshadowed by the effect of rising interest rates, with the Bank of Canada …
8th April 2022
Peru: protests & political peril? The mass protests this week in Peru, triggered by rising inflation, are likely to lead to a further shift towards looser fiscal policy and a larger political risk premium on local financial assets. The demonstrations were …
Africa putting COVID-19 in the rear view mirror? Governments across Sub-Saharan Africa have scaled back COVID-19 restrictions in recent weeks and, despite low vaccination coverage, it seems the virus will be less disruptive to activity going forward. But …
The government’s new energy strategy, revealed earlier this week, will do little to reduce the current upward pressure on inflation. The strategy commits to generating 95% of electricity from ‘low carbon’ sources by 2030, with additional targets to ramp …
The age of turbulence all over again As it was with Alan Greenspan, we suspect that, although he still receives favourable reviews now, history will judge Jerome Powell’s tenure as Fed Chair far more harshly. With the benefit of less than 24 months of …
Russia hit with new energy sanctions This week’s announcement that the EU will ban the import of Russian coal from mid-August will not have a major impact on Russian export revenues, but it marks a clear shift in the EU’s aim to target Russia’s energy …
Flodén dials up the hawkishness While Anna Breman recently vented her hawkish views at a bunch of students (see here ), Martin Flodén treated a roomful of finance types to a rousing monetary call to arms this week. (See here .) (Recall that Mr Flodén and …
The latest surveys suggest that the euro-zone economy was still growing at a decent pace in March but that firms, consumers and investors expect much worse to come. Table 1 shows some of the timeliest survey indicators immediately before the euro-zone’s …
Pressure mounting on India-Russia relations Relations between India and Russia came under fresh scrutiny this week, with US officials warning of “significant and long-term” consequences if India moves towards a “more explicit strategic alignment” with …
Prime Minister loses case in Supreme Court A change of leadership in Pakistan looks likely this weekend, calling the future of the country’s IMF deal into question. Yesterday, the Pakistani Supreme Court ruled unconstitutional the dissolution of the …
Property green shoots trampled New homes sales had stabilised around the turn of the year as the regulatory stance turned more supportive for homebuyers from October onwards. Given this policy shift, we had expected sales to rebound before long. But those …
Yen could weaken further While part of the recent sharp weakening in the yen can be attributed to the recent deterioration in Japan’s terms of trade (see here ), we don’t think a rebound in the current account surplus will cause the yen to strengthen. …
Strong inflation to trump sluggish wage growth When we predicted two months ago that the RBA would start to hike rates in June, we were among a small minority of analysts holding that view. But with the RBA this week signalling that it will no longer be …
What now for the Egyptian pound? The Egyptian pound has remained relatively stable since last month’s devaluation , which may suggest it has reached its fair value. But we still think policymakers need to move to a more flexible exchange rate and allow …
7th April 2022
Yield curve inversion adds to recession fears The inversion of the 10y-2y Treasury yield spread this week led to predictable speculation that the Fed’s interest rate hikes would quickly push the US economy into recession. Admittedly, high inflation has …
1st April 2022
Brazil: high inflation raises wage spiral, strike risks The start of a general strike by workers at Brazil’s central bank today to push for an inflation-busting 26.3% pay rise has mainly been a matter of concern for analysts because of the practical …
Hopes of a peace deal fall flat Optimism about the prospect of an end to the war in Ukraine came and went this week. Hopes were raised after negotiators met in Istanbul on Tuesday and Russia said that it would significantly pare back military operations …
SA officials to give ground on public wages? Public sector wage negotiations will soon kick off in South Africa and there are reasons to think that officials may concede further ground to trade unions. A surging wage bill has been a key driver of the …
The number of new COVID cases across China has fallen over the past couple of days led by a sizeable drop in Shanghai. (See Chart 1.) There’s not much to celebrate if you’re in Shanghai though and have just had your lockdown extended. Chart 1: New …
Another month, another inflation surprise With euro-zone inflation having jumped to 7.5% in March (see here ) it seems increasingly likely that the ECB will accelerate its plans to tighten monetary policy. We now think it will end net asset purchases in …
Shifting goalposts for Nationalbank and SNB The fact that we now expect the ECB to hike interest rates sooner and faster than we previously anticipated naturally affects our outlooks for policy in Switzerland and the Nordics. Note that we now forecast the …
The strong activity data released this week raise the odds of the Bank of Canada hiking interest rates by a larger 50bp at its meeting later this month, particularly if the government loosens fiscal policy in its 2022 budget announcement next week. …
The squeeze on real household disposable incomes will hit harder from today. The first day of April brings with it a 54% leap in utilities prices as well as rises in council tax, water prices and many phone contract prices. Government benefits rise too, …
Dovish RBI will need to tighten before long Watchers of India’s economy will be focussed on the RBI’s policy announcement at the conclusion of the MPC meeting on Friday 8 th April. Clients can read a full preview of the announcement in our RBI Watch …
BoJ back in control for now The Bank of Japan’s Yield Curve Control framework had to battle for survival to an extent never seen since its launch in 2016. 10-year Japanese Government Bonds (JGBs) have fallen back to 0.20% today after briefly breaking the …
Economy sails through Omicron The 1.8% m/m rise in Australia’s retail sales in February marked the second consecutive increase and underlines that spending remained resilient throughout the Omicron wave. And with sales at cafés and restaurants hitting a …
Omicron hit to be even smaller than first thought GDP data released over the next month or so are likely to show that recoveries continued everywhere across the region (excluding China) in Q1. That’s despite the fact that almost all countries set fresh …
What does the end of the Expo mean for Dubai? The World Expo in Dubai closes its doors today and, while it has provided a near-term fillip to the economy, we are concerned that it will leave a legacy of overcapacity in key sectors that reignites the …
31st March 2022
Amlo threatens Mexico’s institutions again Yesterday’s comment by Mexican President López Obrador (Amlo) that Banxico would raise its policy rate by 50bp , four hours before the official decision, is not a big deal in itself. But it adds to the sense that …
25th March 2022
Russia’s financial markets return from the ashes Trading on the Moscow Stock Exchange returned this week, with the central bank allowing trading of sovereign debt from Monday and selected equities from Thursday. Russian markets remain illiquid and there …
Ghana: interest rates up, gov’t spending down The Ghanaian authorities took steps this week to shore up the cedi and tackle the poor public finances but, even though a sovereign default is not imminent, officials may eventually have to back down and turn …
Two weeks ago we outlined how the upgrade to our commodity price forecasts, following the start of the war in Ukraine, would cause GDP growth and inflation to be higher than we previously assumed, prompting the Bank of Canada to hike more aggressively. …
Less than a week after the Fed raised interest rates by 25bp at its policy meeting and issued projections showing that it intended to hike rates at each of the remaining six meetings this year, Chair Jerome Powell adopted an even more hawkish tone in a …
European policymakers remained divided this week on whether to impose more curbs on Russian oil and gas. As we argued here , an EU embargo on Russian oil would be less disruptive than cutting off natural gas. But the EU is determined to reduce its …
Breman vents to a bunch of 16-19 year olds Riksbank Deputy Governor Anna Breman appeared to take out her hawkish frustrations on a group of secondary students in a speech on Wednesday. One can only speculate as to what the pupils made of the talk; while …
This week’s Spring Statement felt more like a piece of political theatre than an exercise in supporting the economy. Rishi Sunak’s determination to be remembered as a tax-cutting Chancellor meant that he made a great fanfare about cutting fuel duty for …
Doves in the ascendency Dovish comments from policymakers over the past week support our view that central banks in South East Asia will buck the trend of global tightening and leave interest rates unchanged over the coming months. The central bank in the …
Rupee-ruble exchange would still lift oil import bill Indian authorities are in advanced discussions with their Russian counterparts over a rupee-ruble exchange system that would enable the two countries to continue trading even as Russia gets blocked …
Current wave yet to be brought under control Daily new domestic virus cases have rebounded over the past week and are now back near the peak of 5,154 hit on 14 th March. This is largely due to mass testing finding hidden infections. 10 days ago, 32% of …
Inflation picking up even further NAB’s February business survey had already highlighted that purchase costs were rising at a rate consistent with a further pick-up in underlying inflation. And the flash PMIs for March, released this week, provide further …
Kishida considering fresh support measures After a brief fall, the price of Brent crude oil has jumped again over the past week and we expect to remain around current levels of US$120 per barrel across the second quarter. Meanwhile, Japan’s biggest …
Egypt buttering up the IMF? Policy announcements in Egypt this week have been pinned on the spill-overs from the war in Ukraine, but they actually have been some time in the making and may be paving the way for a fresh IMF deal. At a surprise meeting on …
24th March 2022
Nigerian economy feeling the pain from FX policies Evidence is building that Nigeria’s unorthodox exchange rate regime is fuelling inflation and increasingly damaging economic activity. Policymakers at the central bank have been reluctant to let the naira …
18th March 2022
While the start of a US Fed tightening cycle has historically sent alarm bells ringing in Latin America, the region generally looks well placed to weather any potential storm this time. Chile may be an outlier, though, given its worrying external …
The Fed delivered on expectations of a 25bp rate hike this week but went further than we anticipated in pencilling in a further six 25bp hikes this year and four next. With their forecasts for core inflation in future years close to our own, we have …
