South Africa, Nigeria stuck in the slow lane Q2 GDP data released this week supported our view that underlying growth in Africa’s two biggest economies remains weak. In Nigeria, surging oil production wasn’t enough to prevent headline growth from slowing …
6th September 2019
‘When the mountain is low, the valley is low’ We’ve been arguing that the drag from next month’s sales tax hike will be less severe than the one after previous tax hikes. Finance Minister Aso noted earlier this week the absence of a spending rush as …
Gold imports to remain low Gold prices remain close to all-time highs in rupee terms, but the latest numbers on gold import volumes should assuage any concerns over the impact on the external position. Government officials announced this week that gold …
Tax cuts will have an impact soon enough The 0.5% q/q rise in GDP in the second quarter was stronger than we had anticipated. Admittedly, that strength was partly driven by an outsized 0.6 ppt contribution from net exports. But there was also a 0.5ppt …
Change in Aramco chief won’t affect oil policy Developments over the past week add to the signs that the Saudi government is ramping up preparations for the listing of state-owned oil company Aramco, but the latest moves are unlikely to result in a shift …
5th September 2019
While the US-China trade war has continued to escalate, commodity prices have clawed back a little of their lost ground since the trough at the end of last week. This was aided in part by President Trump seeming to strike a more conciliatory tone on …
30th August 2019
Back when a trade war was just a rallying cry in Donald Trump’s presidential campaign, he pledged to put a 45% tariff on all Chinese goods. 45% on some products no longer seems unlikely. But both sides are opting to avoid across-the-board tariffs, …
More mixed signals A few less-closely followed data releases this week presented mixed messages for the Bank of Canada ahead of its meeting next week. The first was new home sales data for Toronto and Vancouver. In Toronto, sales were up by a substantial …
Dire Swedish data run goes On and On and On The fourth consecutive fall in the Swedish Economic Tendency Indicator continued the recent run of poor data releases. The indicator fell in August to its lowest level since June 2013 and the broad-based …
No joined-up thinking raises risk of more surprises The Argentine government’s debt reprofiling plan has been greeted with some scepticism, and we think markets will remain under pressure unless investors see evidence of joined-up thinking between Alberto …
The PM’s decision to suspend Parliament from the week commencing 9 th September to 14 th October has increased the downside risks to the economy by increasing the chances of a no deal Brexit on 31 st October. (See here .) Indeed, in the week that many …
Bond market rally complicates life for ECB More policy loosening is on the way in the euro-zone, but it will not be supported by all of the ECB Governing Council. After holding his tongue for several months, Bundesbank boss, Jens Weidmann, said this week …
The trade dispute with China may be escalating at a rapid pace but, despite the concerns of Fed officials, there is still little evidence that this is having a significant impact on the economy. Following China’s move to levy additional tariffs on $75bn …
No-deal Brexit risks come back into play The increasing likelihood of a no-deal Brexit is coming at a time when Central Europe is starting to be affected by weakness in the euro-zone and a more general slowdown in the global economy. As a result, the …
Mozambique: Debt deal is only the first step Even if bondholders agree to the government’s bond restructuring deal – as recent signs suggest they will – Mozambique’s debt problems will be far from over For one thing, the deal only covers the US$727mn …
Iron ore price fall ends the party before it starts We estimate that the current account reached a surplus in the second quarter for the first time in more than 40 years. (See Chart 1.) That extraordinary achievement was made possible by the rally in iron …
RBI capital transfer will strengthen fiscal position… The RBI’s announcement this week that it would transfer a record dividend to the finance ministry in the current fiscal year on the recommendation of a panel study has a number of important …
Korea 2020 budget boost Korea’s proposed budget for 2020 includes a large fiscal boost, which should partially offset the external headwinds facing the economy. The draft budget will be submitted to the National Assembly next week and envisages an …
FSA demands change in regional banking sector The regulatory drive for consolidation in Japan’s regional banking sector is gathering pace. The Financial Services Agency (FSA) announced this week a series of carrot and stick measures to stimulate …
Saudi equity market struggles The fall in the Saudi Tadawul equity index this week, despite the second phase of its inclusion in the MSCI EM index, reinforces our view that the stock market will struggle this year. Saudi Arabia’s stock market has been …
29th August 2019
Fed officials signalled this week that they are content for now to take their cue from the bond market, with Chair Jerome Powell's Jackson Hole speech giving a strong hint that a September rate cut is coming. Earlier this week, the minutes from the July …
23rd August 2019
Brazil’s sluggish recovery Data due next week are likely to show that Brazil’s economy stagnated in the second quarter and, while there are signs that activity strengthened at the start of Q3, the economy remained extremely weak. The Q2 GDP figure (due on …
The 2019 Bank of Canada rate cut camp has gotten a little less lonely. While we were the sole member for over a year, two more institutions joined us this week. That means five of the 18 economists that submit forecasts to Bloomberg now expect the Bank to …
Italy heading for caretaker government? The fall of another Italian government comes as no surprise, given that their average lifespan over the past few decades has been just over a year. But it is a bit surprising that Italian government bonds rallied …
We have our doubts that a US-UK trade deal, even a “modular” one, will be easily achievable if there is a no deal Brexit. In any case, the bigger issue will still be the trading relationship between the UK and the EU. Boris Johnson’s meetings with …
Philippines budget: three key takeaways Earlier this week the government in the Philippines unveiled its budget plans for next year. There are three key points worth highlighting. First, while the government has been touting the boost to economic growth …
PBOC could fend off a US attack on the RMB There is speculation that the Trump administration could attempt to weaken the US dollar by intervening in FX markets to push up the value of the renminbi. But we doubt such efforts to influence China’s exchange …
Turkish central bank takes aim at bank lending The fall in the Turkish lira this week amid concerns about the central bank’s shift towards monetary easing strengthens our view that, while interest rates will be cut aggressively in the near term, the MPC …
NOK/EUR to fall to record low Markets are more “hawkish” than we are on rates in Norway – they expect rates to be raised by roughly 50bp by the end of this year while we expect the Bank to leave them unchanged. Meanwhile, investors appear to have priced …
South Africa: Inflation opens window for rate cut News that South African inflation slipped to 4.0% y/y in July supported our view that policymakers at the SARB will cut their key rate to 6.25% in September. As we’d expected, falling petrol prices more …
Inverted yield curve Investors have had their feathers ruffled by the decline of 10-year government bond yields below 2-year government bonds yields in the US. That inversion of the yield curve is seen by many as a signal of an impending recession. …
Corporate tax cut indicative of looser fiscal stance Hot on the heels of Prime Minister Modi’s recent call for looser policy to support economic growth (see here ), a government panel this week recommended that the corporate tax rate for all companies be …
Hiring subsidies for Ice Age Generation This week it was revealed that the government plans to offer a new set of hiring subsidies to help workers find regular employment. This could provide a boost to aggregate wages. Businesses offering training will …
Lebanon’s debt back in the spotlight The dire finances of the Lebanese government have come back under the spotlight and we continue to think that some form of debt restructuring is more likely than not. Argentina’s experience in the past couple of weeks …
22nd August 2019
Argentine debt default becoming inevitable The Argentine peso has stabilised over the past few trading days but the collapse earlier this week has made a sovereign debt default highly likely. At the risk of blowing our own trumpet, recent events have left …
16th August 2019
In contrast to the gloomy picture painted by the now even more inverted yield curve, the latest housing indicators suggest fundamentals continue to improve. Home sales rose by 3.5% m/m in July and are now back in line with their five-year average. The …
The Trump administration’s surprise announcement this week that it intended to delay the introduction of the 10% tariff on more than $150bn of finished consumer goods may have saved the Holidays, but it provided only a brief respite for the stock market …
SNB FX interventions are gathering pace Spare a thought for the poor FX team at the SNB: while much of Europe is away on holiday, data released on Monday showed that they recently had their busiest week of interventions since April 2017. It’s worth noting …
Whereas an inverted yield curve has been a good indicator of US recessions, the UK yield curve is less reliable. The US treasury yield curve has inverted before all five US recessions in the past five decades, with only one false positive. Over the same …
German yield curve not a good guide to recessions With all the talk of inverted yields curves predicting a recession in the US, it is worth taking a closer look at what yield curves are telling us in the euro-zone. The most obvious place to start is …
Russia: slow and bumpy recovery ahead Russia’s economy staged a recovery in Q2, but the early evidence suggests that the economy failed to gather momentum at the start of Q3. The preliminary Q2 GDP figure released on Monday showed that the economy …
Nigeria: President calls for tighter FX curbs President Muhammadu Buhari directed the CBN to further restrict importers’ access to the official FX market this week, raising fears that higher food prices would add to inflationary pressures. But the failure …
Global recession fears Weak data earlier this week from China and Europe, the worsening political crisis in Hong Kong and the fall in long term bond yields in the US have all helped raise fears of a sharp slowdown in global economic growth. While we think …
Foreign firms hardest hit by industrial slowdown Growth in industrial value-added fell to a 17-year low in July, according to data published this week, triggering renewed concerns about China’s economic outlook. Admittedly, these figures haven’t always …
Further loosening still likely in near term In a wide-ranging interview with the Economic Times published this week, Prime Minister Modi commented on several economic issues. Plenty of emphasis was placed on the measures taken to revive economic growth …
Reiwa celebrations or pre-tax spending rush? The preliminary estimate of Q2 GDP showed a strong 0.4% q/q increase in output. One of the drivers was a 0.6% q/q jump in private consumption. Much of the media coverage has attributed this to consumers …
Strong jobs growth unlikely to last The RBA’s latest Statement on Monetary Policy highlighted the tension between soft income and GDP growth on the one hand and strong employment growth on the other hand. We’ll have to wait until early September to find …
With economic growth slowing rather than collapsing and both wage and price inflation rebounding in recent months, further interest rate cuts are hard to justify on purely economic terms. Admittedly, a further escalation of the trade war in the coming …
9th August 2019
Argentina elections: your primer on the primaries Argentine markets are likely to take their cue from the outcome of Sunday’s primary election when they open next week, but the vote doesn’t always foreshadow the presidential election outcome. Argentina’s …
The fall-out from the escalation of the US-China trade war, as well as signs of even weaker GDP growth in Europe, moved market expectations for the Bank of Canada’s policy rate closer to our own forecasts this week. That, combined with greater demand for …
