Commodity prices lost ground last week, as the rapid spread of the Wuhan coronavirus has dented China’s near-term growth prospects . Indeed, both oil and base metals prices have fallen 10% from their respective January peaks. While it is impossible to …
31st January 2020
In a speech this week, Deputy Governor Paul Beaudry set out how the Bank of Canada now tries to incorporate financial vulnerabilities into its interest rate decisions. In the speech, which followed the release of a detailed working paper on the topic …
Africa: CE pessimism about the usual suspects We published our quarterly Africa Outlook this week, in which we laid out our characteristically below-consensus forecasts for the region. But a look behind the headline number shows that we’re actually pretty …
GDP increased by a decent 2.1% annualised in the fourth quarter, even if the underlying details weren’t quite as upbeat. Final sales to private domestic purchasers increased by a more muted 1.4%, which was a four-year low, as consumption growth slowed …
Weak growth in Q4 not just a one-off The Q4 GDP data published this week were weaker than we or the consensus had anticipated. And the region’s poor performance was not just down to Germany and Italy, with France’s economy contracting. It’s also not clear …
Manufacturing appears to have passed the worst January’s surge in the Swiss KOF was the most eye-catching data release of the week. While we suspect that the scale of the improvement from December may have been a bit of a rogue reading, the fact that the …
Brazil: BCB governor opens door to another cut Dovish comments from Brazil’s central bank governor and the continuing shift in market expectations have prompted us to pencil in a 25bp interest rate cut next Wednesday. At the last meeting in December, …
Our interest rate call clears the first hurdle While some may raise a glass to the UK leaving the EU tonight, we will be toasting our call that interest rates would not be cut from 0.75%. (See here .) But our view that rates won’t be cut at all this year …
CBRT’s output gap assumptions seem implausible In its Inflation Report released this week, Turkey’s central bank (CBRT) stuck to its forecast for inflation to fall back in 2020-21, but this rests on the farfetched assumption that a negative output gap …
Vietnam: policy dilemma for central bank Inflation in Vietnam reached its highest rate since 2013 in January, but we doubt the central bank will respond by raising interest rates. The sharp rise in inflation from just 2.0% y/y in September to 6.4% in …
Sale of Air India a prop to the budget Ahead of tomorrow’s Union Budget, the government this week invited bids from potential investors in Air India. (Clients can read a preview of the Union Budget here .) Its sale would provide some much-needed revenues …
Housing costs will boost inflation this year Headline inflation edged higher in Australia from 1.7% in Q3 to 1.8% in Q4. But trimmed mean and weighted median inflation remained stable and core inflation (excluding food and energy) declined from 1.9% to …
Dove set to replace Harada on Policy Board The government’s nomination of reflationist Adachi Seiji to the Bank of Japan Policy Board this week doesn’t raise the chances of any fresh stimulus being announced in the near term. Adachi represents a …
Oil prices drop raises of deeper OPEC+ output cuts Oil prices have dropped back in recent weeks due to fears about the coronavirus outbreak in China and, while lower prices don’t pose a significant threat to the Gulf economies, it has increased the …
30th January 2020
More clues on Argentina’s restructuring There were three key signs this week that the Argentine government’s deadline of March 31 st for a sovereign debt restructuring is unlikely to be met. First, a debt swap on over $1bn worth of peso-denominated …
24th January 2020
Most central bank governors would only tell us that the door is open for an interest rate cut – as Bank of Canada Governor Stephen Poloz did on Wednesday – if they wanted to signal that a cut was on the way. But with Poloz also saying he would need to see …
Next week’s FOMC meeting is likely to be a low-key affair, with the resilience of the recent economic data and the Phase One trade deal justifying the Fed’s decision to bring its recent rate cutting cycle to a halt last October. This week brought …
Nigeria: CBN tweaks policy, but holds the course Policymakers in Abuja kept their key interest rate on hold today, but made a technical adjustment to put a floor under falling interbank rates. Increasing the Cash Reserve Ratio from 22.5% to 27.5% will …
There’s been a few U-turns this week with the most striking happening in the markets expectations for interest rates. In early January, the markets were pricing in just a 5% chance of interest rates being cut from 0.75% to 0.50% at next Thursday’s …
Sluggish growth to continue In its latest World Economic Outlook, the IMF this week nudged down its forecast for euro-zone 2020 GDP growth from 1.3% to 1.2%, reflecting slightly weaker forecasts for Germany and Spain. The IMF is not the only organisation …
The show must go on If it weren’t for constitutional limits on holding snap elections, Norway would be heading to the polls this year after a rift over policy led the far-right Progress Party (PP) to pull out of the current four-party coalition government …
CBRT’s inflation forecasts to be proven wrong Comments from Turkey’s central bank (CBRT) governor in Davos this week suggest that further rate cuts lie in store. This is premised on the view that inflation will fall back, which is likely to prove …
Wuhan virus continues to spread With the number of new cases of the coronavirus continuing to increase, concern is rising across Asia over the potential economic impact. If the outbreak continues to spread, one of the main channels through which the …
Virus starting to take a toll on economic activity When we first discussed the potential impact of the coronavirus on Tuesday, there were 300 confirmed cases and six fatalities. Those numbers have since jumped, to 830 infections and 25 deaths. The rapid …
New coronavirus a threat to tourism The Wuhan coronavirus has now spread across China and to most neighbouring countries, including Japan. China has been much more proactive in trying to contain the disease than it was with SARS. But China is also much …
Upbeat labour market may delay rate cut The labour market has remained solid despite subdued economic activity. Employment rose by 28,900 in December, far exceeding analysts’ expectation of a mere 10,000 pick-up. The unemployment rate fell for the second …
FDI inflows to pick up despite risks UNCTAD reported this week that foreign direct investment (FDI) inflows to India rose to US$49bn (1.7% of GDP) in 2019 from US$42bn (1.5% of GDP) in 2018. This is a welcome development. FDI inflows are a more stable …
Lebanon: new government faces unenviable task Lebanon’s prime minister finally managed to form a new government this week and policymakers are quickly facing up to reality of the economy’s woes. An approach to the IMF for a financing package seems to be …
23rd January 2020
Recent accusations from some that Governor Stephen ‘Candyman’ Poloz is the prime reason for households’ debt binge in the past decade are unlikely to sway the Bank of Canada’s decision next week. With the outlook slowly improving, we expect the Bank to …
17th January 2020
The gloss coming off Brazil The latest Brazilian activity data have taken some of the shine off the economic recovery. Industrial production figures released last week showed that output fell in November, and other data published in the last few days also …
The main economic impact of the signing of the Phase One trade deal this week was to further reduce the downside risks to the outlook. But the details of the deal also suggest some upside risk to economic growth this year if China follows through on at …
A flurry of weak data this week has sent money markets into a tailspin. But we suspect that the MPC will just about look past the Brexit and election related distortions and will probably hold off cutting interest rates. At the start of the year the …
No easy choices for Swiss policymakers The re-inclusion of Switzerland on the US Treasury’s Monitoring List of potential currency manipulators this week did not come entirely out of the blue. Having only been taken off the list in May 2019, we predicted …
Phase One deal not a game changer for Europe This week brought a mixed bag of news on global trade, but the big picture is that euro-zone export growth is likely to remain slow this year. The main event was of course the Phase One deal between the US and …
Russia: the taxman cometh (but may giveth) Russia has been gripped by political turbulence this week after President Putin announced a series of proposed constitutional amendments, which are expected to allow him to wield power once his presidential term …
Strong rupiah gives space for BI to cut again Bank Indonesia is likely to leave interest rates unchanged at its meeting on Thursday, but the strong recent performance of the rupiah (see Chart 1) means further cuts are likely over the coming months. Chart …
South Africa: Recession warnings flashing The latest activity data suggest that the economy strengthened a touch in November, with output probably rising by 0.3% q/q saar. Given that widespread power cuts almost certainly disrupted output in December, we …
FSA seeks to change behaviour of regional banks The Financial Services Agency’s (FSA) plans to allow regional banks to diversify into a wide range of business areas is another step in the right direction by Japan’s financial regular. FSA chief Endo …
Hurdles remain to Wall Street’s China dream The Phase One trade deal signed this week includes commitments by China that will widen market access for US non-bank financial institutions (NBFIs). Foreign ownership caps on insurance, securities, futures and …
Trade deal not great news for Australia Phase one of the US-China trade deal was signed this week which marks an end to the first phase of the trade war. (See here for detailed coverage.) It removes the downside risk of imminent further escalation which …
Tentative signs of a recovery Local media has been awash this week with headlines about “stagflation” – a disquieting mix of stagnant or slowing economic growth and rising inflation. On the face of it, these concerns are justified in India today. …
Lebanon: debt swap proposal fails to take off The unravelling this week of a proposed debt swap by the Lebanese authorities suggests that, even once a government is formed, debt restructuring will be a drawn-out process. On Sunday, Lebanon’s central bank …
16th January 2020
Chilean peso weakens, will gain later this year While most EM currencies tumbled this week following the assassination of Iranian General Qassem Soleimani, the Chilean peso fell furthest. Having strengthened from a trough of 837/$ to 750/$ over the course …
10th January 2020
This week brought another round of, on the whole, positive economic data, while the signing of the phase one US-China trade deal next week should further bolster confidence. With tensions in the Middle East easing, those developments support our view that …
Despite the further deterioration in the latest activity data, in his latest ‘fireside chat’ on Thursday Bank of Canada Governor Stephen Poloz seemed cautiously upbeat about the current state of the economy. We will echo the Governor’s message that the …
There is some early evidence that a “Boris bounce” after the election victory might be in progress, but the size and duration of any upswing will depend on how well the next stage of the Brexit negotiations go. December’s final IHS Markit/CIPS services …
Risks still prominent in Turkey’s banks Turkey’s financial markets have rebounded in recent days, partly because fears of a US-Iran war have eased but also because local banks have sounded more bullish on their own performance this year. But long-standing …
News that the headline inflation rate in the euro-zone jumped from 1.0% in November to 1.3% in December, and that the core rate (excluding energy, food, alcohol and tobacco) was unchanged, also at 1.3%, has once again raised the possibility that inflation …
SNB back in the FX market If staff at the SNB had hoped to ease themselves back in gently after the Christmas break, they will have been disappointed. Data released on Monday indicate that the Bank intervened to weaken the franc last week for the first …
Recovering pork supply to offset higher oil prices Fuel prices jumped in December, pushing non-food inflation to a 5-month high. Another pick-up seems likely this month, even though the spike in oil prices following the killing of Iranian General …
