Yesterday’s 1.5% weakening in the pound against the US dollar to $1.35 and the 20 basis point decline in 2-year gilt yields to 0.43% show that the markets are reassessing the Bank of England’s inflation fighting credentials. And who can blame them. At the …
5th November 2021
After failing to push back convincingly against financial markets’ expectations for rate hikes in last week’s press conference, ECB policymakers were out in force this week insisting that the Bank will not raise rates next year. Christine Lagarde said the …
Familiar foe of flying franc occupying minds at SNB Unlike the Norges Bank , the SNB did not have a policy meeting to keep itself busy this week. That said, while the meeting in Oslo was a snooze-fest, as anticipated, the recent surge in the value of the …
Widening outbreak adds to downside risks China’s latest COVID-19 outbreak worsened this week, with daily cases rising above 100. (See Chart 1.) Cases have now been detected in 20 provinces, threatening widespread disruption as officials across the country …
RBNZ to hike by 50bp later this month The sharp decline in New Zealand’s unemployment rate last quarter came despite the strict lockdown implemented in Q3. What’s more, most measures of labour market slack included in the RBNZ labour market suite showed a …
Hike in reverse repo rate not imminent Recent measures by the RBI to further drain liquidity from the banking system have been fuelling hawkish monetary policy expectations. Overnight index swap rates have jumped over the past week. And several analysts …
Kishida delving in the Abenomics playbook PM Kishida’s comfortable Lower House election victory on Sunday should enable him stay clear of the revolving door to the Prime Minister’s office for longer than the year his predecessor PM Suga managed. That …
Egyptian inflation risks lie to the upside Rising wheat and gas prices have added to concerns about inflation in Egypt, raising the risk that the central bank fails to deliver the interest rate cuts that we currently anticipate next year. The government’s …
4th November 2021
Following the Bank of Canada’s hawkish message this week there is a risk that it raises interest rates sooner than we anticipate. Nevertheless, we continue to doubt that the Bank will hike by as much in the coming years as market pricing now implies. The …
29th October 2021
BCB between a rock and a hard place Brazil’s central bank (BCB) can’t win. The further falls in the real after the whopping 150bp hike in the Selic rate on Wednesday suggest that investors didn’t think that policymakers went far enough to allay concerns …
The weakness of third-quarter GDP growth illustrates that, while demand remains strong, the economy has hit a wall of supply constraints. Ongoing product and labour shortages mean that growth will continue to disappoint next year, even if the Democrats …
Two key points from the Budget Budget day produces a flurry of analysis but the most interesting reflections tend to come once the dust has settled and everyone has had time to digest the documents. Two points stand out to us. The first relates to the …
The ECB stuck to its script this week, with Christine Lagarde claiming that, after some “soul searching”, the Bank was comfortable with its view that the recent surge in inflation will prove to be transitory. Also, she didn’t sound too worried that other …
Lira see-saws but CBRT more tolerant A diplomatic spat between Turkey and its Western allies this week was quickly resolved, but it highlighted how vulnerable the lira is to geopolitical developments. And comments from Turkey’s central bank governor …
ANC upset may bolster calls for end to austerity Local elections that take place in South Africa on Monday are unlikely to have a direct impact on macroeconomic policymaking, but a poor showing for the ruling ANC could intensify pressure on the government …
Strong rebound in Sweden Data released this week showed that Sweden’s economy grew by a stronger-than-expected 1.8% q/q in Q3, but the data weren’t as encouraging as they first appeared. The upside surprise in the third quarter was largely due to a …
China’s currency has strengthened markedly since the middle of 2020. And while its gains against the US dollar have levelled off this year, it has continued to appreciate in trade-weighted terms, recently hitting its strongest level since 2016. Over the …
Mixed end to the quarter for Korea The latest batch of activity data from Korea indicate that the automotive sector was hit hard by shortages last month, but that the service sector is enjoying a recovery. The provisional Q3 GDP figures released earlier …
RBA throws in the towel With retail sales rebounding even before lockdowns ended and nearly 90% of the population now fully vaccinated, our previous forecast that consumption will rebound by just 3.5% q/q in Q4 following a 10% q/q plunge in Q3 is no …
No more 8pm last orders The Bank of Japan revised down its near-term GDP growth forecasts in this week’s “Outlook” report, citing continued weakness in services consumption and supply shortages as the key factors. Indeed, while mobility has picked up as …
Rising oil prices not yet a concern Global oil prices rallied further this week to multi-year highs, and sustained increases could be economically-destabilising for India. After all, it is one of the world’s largest net importers of oil, and high global …
OPEC+ to stick to its guns Next week’s OPEC+ meeting is set to see the group resist calls for it raise output more quickly amid high oil prices. Were output cuts to be unwound faster, that would on balance probably provide a boost to GDP growth in the …
28th October 2021
The fallout from the Chilean protests two years on This week marked the two-year anniversary of the mass protests in Chile which caused a political risk premium to emerge in local financial markets and the currency. We think that lingering political risks …
22nd October 2021
Disquiet about Ghana’s debt growing The sharp rise in Ghana’s sovereign dollar bond yields this month suggests that investors are coming around to our view about the country’s worrying debt trajectory. Ghana’s dollar-denominated sovereign bond yields have …
The winding down of government support to households and firms means the economy faces a large fiscal contraction this quarter, which we think will cause GDP growth to disappoint. The three programs that expire tomorrow are the Canada Recovery Benefit …
A renewed wave of COVID-19 cases has prompted some governments to reimpose strict containment measures and talk of lockdowns is becoming more widespread. The downside risks to what are already strong headwinds facing the recovery are mounting. COVID-19 …
Employees are flexing their new-found bargaining power, with the unprecedented rate of job turnover, labelled “The “Great Resignation”, triggering a surge in wage growth for job switchers. Wage growth for job stayers is, for now, more muted. But, as the …
The timing of Jens Weidmann’s resignation was not the shock that many journalists suggested it was. After all, early resignations have become as much of a tradition for the Bundesbank as its opposition to QE and negative interest rates! Nor was it a …
Markets and monetary policy The markets easily shook off this week’s news that CPI inflation fell back in September, from 3.2% to 3.1%, and continued to price in some rapid rises interest rates. That makes sense when everyone knows that CPI inflation is …
Riksbank Board increasingly finely balanced Like any good double act, Riksbank Governor Ingves and Deputy Governor Flodén stuck to the same script when they jointly addressed the Bank’s Finance Committee on Tuesday. Both reiterated the view that the …
Economic gloom will be temporary The next few weeks will see the publication of a host of third quarter GDP figures from across the region. While the data are likely to paint a downbeat picture, output should rebound strongly in the final quarter of the …
Surging inflation puts pressure on RBNZ The 2.2% q/q rise in New Zealand’s consumer prices was the strongest since 2011 and well above the RBNZ’s forecast of a 1.4% increase. In fact, the quarterly increase was enough to meet the RBNZ’s 1-3% annual …
We’ll publish our quarterly China Economic Outlook next week. Since the last edition , exports have performed better than we’d expected but this didn’t make up for the disruption caused by measures to contain the Delta variant outbreak in August. That …
Firms pulling in their horns in face of disruptions Following the huge plunge in car sales last month, the September trade figures corroborate that Japan’s carmakers have been hit hard by supply shortages. While exports of other products were broadly …
Vaccine demand appears to be waning India administered its billionth COVID-19 vaccine dose this week, marking a significant milestone in the country’s rollout. But the aggregate figures mask a worrying recent slowdown in the vaccination drive. The number …
Lebanon’s long and winding road to recovery The IMF confirmed this week that technical talks with Lebanon have restarted, suggesting that the country is making tentative steps to emerge from its crisis. Prime Minister Najib Mikati has said he hoped a deal …
21st October 2021
The fiscal headache from hawkish central banks Monetary tightening cycles have been a hot topic in Latin America recently, and the supersized 125bp rate hike in Chile caught the eye this week. Most of the focus has been on tackling high inflation, but one …
15th October 2021
Nigeria’s VP joining pro-market FX club Recent comments by Nigeria’s vice president endorsing a more market-based exchange rate regime may reflect growing concern about the distortionary effects of the current FX system. But there is no evidence that key …
This week brought more news that acute labour shortages and the resulting surge in wages are rapidly feeding through into the most cyclically sensitive components of the consumer price index. For the past couple of months, that impact has been masked by a …
We are not convinced that the further rise in oil prices this week will be sustained. Even if we are wrong, we doubt that higher oil prices will cause the Bank of Canada to become much more hawkish. The WTI oil price rose to more than $80 this week for …
Core inflation still subdued While global financial markets are obsessing over the possible rebirth of inflation, there are precious few signs that it is about to take off in Scandinavia. We learnt this week that the headline rate rose in both Norway and …
Erdogan playing with fire in push for rate cuts After putting the final nails in the coffin of the Turkish central bank’s credibility with last month’s surprise interest rate cut, the grave started to be dug this week with the firing of three MPC members. …
Perhaps the most significant event of the past week came as markets opened on Monday morning. In response to two hawkish interviews by members of the Monetary Policy Committee (MPC) in the weekend papers – one by Governor Bailey and another by Michael …
Higher oil and gas prices… lower inflation? The rollercoaster ride in European gas prices continued this week, but the big picture is that they remain very high. Meanwhile, oil prices have continued to climb. We think that this will contribute to a bigger …
Ruling coalition set to win another majority PM Kishida dissolved the lower house yesterday for a 31 st October general election with his ruling coalition well placed to win a majority. In polls conducted since Kishida became PM, on average 44% have …
Just how bad are things? There remains an unusual amount of uncertainty about China’s economic performance in September. The PMIs are less helpful than usual as the surveys were conducted prior to the disruption from power rationing late in the month. …
Asia reopens While international travel in the rest of the world is making a steady recovery, tourism across Asia remains on its knees. In Mexico, international arrivals are now roughly 80% of their pre-crisis level, while in Spain the equivalent figure …
Doubling migration would rebuild the population The fresh New South Wales premier Dominic Perrottet has received advice that Australia should double its pre-virus level of migration to offset the recent weakness in population growth. The border closure …
Industry hit by supply constraints Lacklustre industrial production data for August released this week were in part a reflection of a weak auto sector, which has been struggling to maintain output in the face of global semiconductor shortages. Vehicle …
Egypt: rising inflation to prompt CBE to stay pat The rise in Egyptian inflation last month is likely to delay a turn towards rate cuts. Figures for September, published on Sunday, showed that the headline inflation rate jumped from 5.7% y/y in August to …
14th October 2021
