Three central banks surprised the markets this week with more hawkish-than-expected communications. The Turkish central bank is likely to cut rates further, but above-target inflation will prevent monetary easing in Hungary and the Czech Republic. …
27th September 2019
ECB divisions increasingly in the open The resignation of Sabine Lautenschläger this week, and continued media coverage of September’s Governing Council decisions, have once more put the spotlight on divisions within the ECB. We think these may get worse …
Despite the headwinds from the global economic slowdown and the political chaos around Brexit, there are still good reasons to think that GDP grew in Q3. However, it is clear that the performance of the UK economy will remain below-par until Brexit is …
Kenya: CBK hints at looser policy in 2020 As we’d expected, policymakers at the Central Bank of Kenya (CBK) kept their benchmark rate unchanged at 9.00% for the seventh consecutive meeting this week. New language in the accompanying statement, however, …
Weak Singapore data to prompt MAS to take action The poor recent performance of manufacturing in Singapore increases the chance that the Monetary Authority of Singapore (MAS) will loosen policy aggressively at its meeting next month. Figures released …
Equity market exuberance likely to fade… The large-scale fiscal stimulus announced last Friday by Finance Minister Nirmala Sitharaman has continued to reverberate in markets. While most Asian equity markets have dropped, the Sensex is up by 2.5% this …
Interest rates cut around the world The Reserve Bank of New Zealand kept interest rates on hold at 1.0% this week following the dramatic 50 basis point cut in August. The decision to leave rates on hold was in line with market expectations and the analyst …
Too much of a good thing? Beijing’s new airport opened its doors this week. It will more than double the city’s passenger capacity, taking it well above other major international hubs, including New York, London, Tokyo, Hong Kong and Dubai. Even if …
Yield spreads widen as Kuroda targets short end We expect the Bank of Japan’s “reverse twist” to intensify after the next Board meeting. On balance, we still think that the Bank will refrain from cutting short-term interest rates, but we’ll closely watch …
Talk of OPEC deal extension to be revived The latest reports suggest that Saudi Arabia has managed to get the bulk of its oil output back online following the Abqaiq attacks but, with oil prices drifting back towards $60pb, the debate may quickly shift to …
26th September 2019
There was a rude awakening for the oil market last weekend as a missile and drone attack on Saudi oil facilities, allegedly backed by Iran, removed around 50% of Saudi capacity . As the dust settled, oil prices ended the week about $5 or 7% higher. We …
20th September 2019
South Africa: Economy falters, no help from SARB Policymakers’ decision to leave their key rate on hold at 6.50% this week suggests to us that the South African Reserve Bank is unlikely to loosen policy further. We’d always argued that inflation would …
After growing at an average pace of 0.3% m/m from March to June, the latest data suggest that GDP contracted in July. Given the weak tone of the timelier merchandise trade data, we were not surprised to learn this week that manufacturing sales volumes …
In recent years the economy has been moving towards full capacity, but at this week’s meeting the Monetary Policy Committee (MPC) judged that it has changed direction and slack is now opening up. Whether that continues, and whether the Committee …
Argentina’s Q2 GDP figures largely moot Data released this week showed that Argentina’s recession eased in Q2, but more timely figures point to a sharp downturn in Q3 and Q4. The headline from Thursday’s Q2 GDP release – that the pace of contraction eased …
Turkey’s banks back in the spotlight The Turkish banking regulator’s decision to force banks to reclassify TRY46bn of loans as non-performing will raise concerns about the health of banks’ loans books, but the major risks in the banking sector stem from …
The Fed voted to cut its key policy rate by another 25bp earlier this week, but it is deeply split over what to do next. Close to one-third of the FOMC is projecting another rate cut before year-end, while close to another third disagreed with this week’s …
Lots of chatter from the Riksbank If a week is a long time in politics, two weeks is an eternity in Swedish economics! The clear deterioration in the economic data since the September policy meeting just a couple of weeks ago – not least the further rise …
Dutch policymakers heed ECB’s call for action … The ECB’s appeal last week for fiscal policy to become the “main instrument” supporting the euro-zone economy appears not to have fallen entirely on deaf ears. The Dutch government this week announced a …
Sales tax hike looming Japan’s sales tax will be raised from 8 to 10% in 11 days’ time. We expect the hit to consumer spending to be significant but less severe than after previous tax hikes. Countermeasures such as a reduced tax rate for certain items …
Is Indonesia going soft on corruption? Indonesia’s parliament has approved changes to how the country’s anti-corruption body (KPK) is governed, a move which could weaken its powers to investigate new corruption allegations. Since it was launched in 2002, …
Fiscal stance still accommodative Government spending contracted in August, leading some to question the strength of fiscal support. But with tax cuts still weighing on revenue growth, the budget deficit remains close to its widest ever. (See Chart 1.) …
Close but no cigar This week the government revealed that in the 2018/19 fiscal year the budget remained in deficit. The deficit was just $690 mn, rounding to 0.0% of GDP, much smaller than the $4.2 bn or 0.2% of GDP deficit that was forecast in the April …
Tax breaks, weaker rupee will have limited impact India’s goods trade deficit held steady at a low level in August. (See here .) However, export growth in value terms dropped to -6.0% y/y. Even focusing on the three-month average to smooth out monthly …
Saudi oil output set to return quickly Saudi Arabia appears to have avoided the worst fears of prolonged disruption to its oil production following the Abqaiq attacks on Saturday. But the attacks appear to have dented the authorities’ appetite to rush …
19th September 2019
Mexico waking up to Pemex’s problems The $5bn cash injection for Pemex announced by Mexico this week adds to signs that policymakers may finally be starting to acknowledge the gravity of the problems at the state energy company. (For more on these issues, …
13th September 2019
The apparent thaw in US-China trade relations gave most industrial commodity prices a lift, but we have seen these sort of ‘goodwill’ gestures before and doubt that the two sides are any closer to resolving their underlying differences . One commodity …
While we already knew that an election was coming, this week Prime Minister Justin Trudeau made it official and the vote is set for 21 st October. Although the global political landscape has been turned upside down in recent years, with big consequences …
The Fed is almost certain to cut its policy rate by another 25bp at next week’s FOMC meeting to between 1.75% and 2.00%. But rising core inflation, the still-solid incoming activity data and the temporary thaw in the US-China trade war all support our …
Over to you, SNB! The recent pick-up in investor risk appetite has given the SNB a little breathing space ahead of its policy meeting next Thursday. Weekly data indicate that the Bank paused its FX interventions to weaken the franc at the end of August …
Poland minimum wage set to rise sharply Sharp hikes in the minimum wage proposed by Poland’s ruling Law and Justice party (PiS) ahead of October’s elections have raised concern about the inflation outlook, but we think that some of the worst fears are …
How much food is in the basket? Pork prices in early September are 70% higher than they were this time last year. How credible is it that overall consumer price inflation is just 2.8% y/y? Unlike most statistics agencies, China’s doesn’t publish the …
ECB has more tools, but they’re blunt The ECB’s new forecasts imply that it is not very confident about hitting its inflation target. Indeed, its new projections show headline and core inflation at just 1.5% in 2021, which President Draghi described as …
With the ECB loosening monetary policy this week, the Fed expected to cut interest rates for the second time in two months next week and the growing political chaos at home, you’d be forgiven for thinking that the Bank of England might be poised to cut …
Cutting Nigeria’s oil output: an empty promise? The pledge this week by Nigeria’s oil minister to reduce oil production to fully comply with OPEC+ quotas would, if it materialises, reduce GDP growth significantly. There is a renewed push for OPEC members, …
Strong baht not to blame for weak exports Policymakers and exporters in Thailand are once again voicing concern about the strength of the baht, which has appreciated again this week and is now approaching a six-year high against the US dollar. Since the …
Car sales data may overstate consumption weakness Data released this week show that new passenger vehicle sales slumped by over 30% y/y in August. This was the biggest monthly decline since records began in 2003. (See Chart 1.) This has inevitably …
Stimulus will overcome low confidence This week’s consumer confidence and business confidence releases were disappointing as both dropped in the latest reading. (See Chart 1.) At first glance, that’s a worrying sign given the support from the RBA’s tax …
Yield curve worries ease Long-term government bond yields have rebounded around the globe this week, with 10-year Japanese government bond (JGB) yields climbing to -0.19% today from a recent trough near -0.30%. (See Chart 1.) Chart 1: 10-year JGB Yields …
Saudi: rising chance of deeper oil output cuts With one eye on the upcoming Aramco IPO and the fiscal position under strain, the odds of the Saudi government pushing for deeper oil production cuts are shortening. This poses a downside risk to our already …
12th September 2019
Although the prices of most industrial commodities rose this week, we think that a sustained and broad-based recovery is still some way away . A trio of factors were responsible for this week’s rise: news that US-China trade talks will resume in October; …
6th September 2019
Argentina: Capital controls raise painful memories The introduction of capital controls last weekend seems to have stabilised Argentina’s official exchange market. After losing 24% of its value against the US dollar over the preceding three weeks, the …
Neither the Bank of Canada’s policy statement nor the speech that followed the next day by Deputy Governor Lawrence Schembri gave us any obvious hints about the future path of monetary policy. The policy statement highlighted the stronger-than-expected …
In a week of mixed economic data releases, it was the news that the US and China would resume trade talks next month that proved to be the biggest development – pushing the S&P 500 back toward a record high and trimming market expectations for additional …
Euro-zone underperforming ECB forecasts The latest data are consistent with our view that the euro-zone economy will remain sluggish. National accounts data published earlier today confirmed that the currency union’s GDP grew by just 0.2% in Q2. (See here …
The Riksbank is in a group of one It was no surprise to see the Riksbank present substantial downward revisions to the back-end of its forecast for the repo rate at its policy meeting on Thursday. However, the fact that the Bank stuck to its forecast of a …
PBOC kicks into gear but fiscal stance unchanged The People’s Bank (PBOC) was quick to answer the State Council’s recent call for more stimulus, announcing a cut to banks’ required reserve ratio (RRR) today. (See here .) More policy easing will probably …
Too quick to become optimistic on Ukraine? Ukraine’s President Volodymr Zelensky has hit the ground running in his bid to push key reforms through the Rada. Markets have taken these developments, as well as the strong Q2 GDP figures, positively but we …
The current economic backdrop means it wouldn’t usually be a good time for the Prime Minister, Boris Johnson, to push for a general election. The 0.2% q/q fall in GDP in Q2 has been followed by a suite of weak activity PMIs in August that has increased …
Deflation fears in Korea overblown Despite headline inflation in Korea (just) dropping into negative territory in August, we don’t think there is much risk of a prolonged period of deflation. Headline inflation fell to minus 0.04% last month – the first …
