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The Bank of Japan announced today that it will allow 10-year yields to rise above the 0.5% ceiling – which it says it is retaining – to a new “just-in-case” cap of 1.0%. With signs mounting of a virtuous cycle between inflation and wages, the chances of …
28th July 2023
The latest RICS survey signalled a slight improvement in occupier and investment sentiment in Q2, but confidence remained low by historic standards. Tight credit conditions and a poor economic backdrop in the second half of this year suggest sentiment …
27th July 2023
As everyone expected, the Fed increased its policy rate by an additional 25bp today, taking the fed funds target range to between 5.25% and 5.50% but, while officials are possibly still eyeing one final hike later this year, futures markets are mostly …
26th July 2023
The sky-high valuations of some touted winners from AI have given rise to claims that their share prices have risen to unsustainably high levels. Is there anything we can learn from the dot com era? The best-performing stock in the S&P 500 in the …
Total returns were negative again in Q2 at -2.0% q/q. This was dragged down by the office sector, where values fell by 7% and quarterly returns were -5.8%, with all other sectors outperforming the all-property number. Nevertheless, we still think office …
Comparing the proper inflation gauges reveals that core inflation in Japan remains far lower than elsewhere. And with most of the recent pick-up in core inflation reflecting soaring imports costs, the Bank of Japan’s assessment that above-target inflation …
The sharp rise in the share of the population with a disability may reflect the legacy of the pandemic. But with the rise in disability rates doing little to keep people out of work, it isn’t necessarily a problem for the economy. According to the …
25th July 2023
July’s flash PMIs suggest that activity slowed further at the start of Q3. Industry remains the weak spot, but the outlook for the services sector has also deteriorated noticeably. And while this seems to be weighing somewhat on employment growth and …
24th July 2023
New home construction has been surprisingly resilient to weaker demand so far this year. But that partly reflects activity being brought forward before building standards were tightened in June. With that boost now over and survey data indicating a …
The Treasury yield curve has been inverted for a long time by past standards, but we think it could remain so until next year even if there’s a recession in the interim. At the start of this month, it briefly looked as though the beginning of the end of …
21st July 2023
Despite today’s big reaction in markets in the UK to better-than-expected inflation news , we still think investors are overestimating the peak in interest rates there and underestimating how much monetary policy will be eased in 2024 and beyond. Indeed, …
19th July 2023
The lower-than-expected CPI inflation data for June probably signals the end of the upward march in mortgage rates. But mortgage rates are likely to plateau rather than fall as the Bank of England keeps interest rates high until next summer and lenders …
Despite the softer tone of the CPI inflation data for June released earlier today, we have raised our forecast for the peak in Bank Rate. Rather than rise from 5.00% currently to a peak of 5.25%, we now think Bank Rate will peak at 5.50%. That’s a bit …
Mortgage rates have risen to a level that could cause costs on a fifth of rental homes to exceed the rent. That is likely to lead to a significant number of forced rental property sales, which will undermine the tight supply conditions that have limited …
Provisional data from the Australian Bureau of Statistics suggest that consumer spending slumped in Q2, as households sharply pared back discretionary expenditure. Faced with falling real incomes and depleted savings buffers, we think households will only …
Rebound in sales spreads to pre-construction sector The pick-up in existing home sales this year has spread to the pre-construction market, with new home sales in Toronto rebounding strongly. Together with the surge in housing starts in June, that …
18th July 2023
Here are answers to some of the key questions that kept coming up during meetings with clients last week in New York and Chicago, and around my presentation to the NCREIF summer conference in Chicago . How bad will it get for offices? Our forecast for …
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19 th July. Register here to join that 20-minute online briefing. Splitting real GDP growth into the sectors most and least sensitive to …
Swiss inflation has fallen sharply this year to below 2% and we expect it to stay there for the foreseeable future. In contrast to the SNB’s view, we think second-round effects on wages will be quite limited. And as a result, we forecast the SNB to start …
The resurgence in female prime-age participation to a record high is helping to support labour force growth, but the recent rapid pace of improvement is likely to fade soon. Although the overall labour force participation rate continues to be held down by …
17th July 2023
The stock market in the US has rarely rallied in recessions that have taken place there since the mid-1850s. Our forecast is that it will take a knock amid a recession in H2 2023 before powering ahead. We would point to five key examples of the stock …
14th July 2023
The resilience of consumption over the past year is partly because households have been willing to save less of their income than before the pandemic, which lends some support to the idea that consumers have been drawing down a stock of “excess” savings …
13th July 2023
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19 th July. Register here to join that 20-minute online briefing. Rising interest rates have led lenders to rein in the supply of credit to …
Lenders expect narrow spreads to keep upward pressure on mortgage rates The narrowing in interest margins reported by mortgage lenders in the Credit Conditions Survey suggests that mortgage rates won’t fall significantly anytime soon. Meanwhile, it became …
Not so long ago, a higher 10-year TIPS yield almost invariably meant an underperformance of US “growth” stocks vis-à-vis their “value” peers, a lower gold price, and a stronger dollar. That’s changed in 2023, though, with the relationships weakening …
Demand falls at fastest rate since last October As we expected, the rise in the average quoted mortgage rate from 4.4% in May to 5.1% in June caused agreed sales and new buyer enquiries to slump. The deterioration in market conditions has left surveyors …
Last year’s sharp weakening of the yen hasn’t boosted goods exports, not least because most exports are invoiced in foreign currency and exporters haven’t slashed prices. Instead, it has lifted corporate profits which has encouraged firms to invest more …
The Bank of Canada’s 25bp hike today, taking the policy rate to 5.0%, is likely to be the last in this cycle. With the labour market loosening, core inflation falling and the survey indicators implying that inflation expectations are normalising, we …
12th July 2023
The decision by the Reserve Bank of New Zealand to leave rates on hold at 5.50% came as a surprise to no one. Indeed, the Committee noted that monetary policy in New Zealand had turned restrictive far sooner than in many other economies. Although the Bank …
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19th July . Register here to join that 20-minute online briefing. To the extent that economic conditions influence general elections, and of …
11th July 2023
We think that the huge expansion of the Italian construction sector over the past two years has run its course, as the reduction in construction subsidies and tighter financial conditions will reduce demand and output. That said, the high backlog of work …
The surge in immigration and improvement in labour supply has helped ease wage growth moderately. But, with limited scope for a further rapid recovery in the labour force, we think a sustained period of weaker labour demand is required to pull wage …
10th July 2023
The recent US experience seems to suggest that the household saving rate could fall further as Canadians draw down the savings they built up during the pandemic, supporting consumption. A closer look suggests that the saving rate overstates the health of …
The fall in job openings in May suggests that labour shortages continue to ease, although the rebound in the job quits rate implies that wage growth is set to slow only gradually. The renewed fall in the job openings rate to 5.9%, from 6.2% in April, …
6th July 2023
The Fed’s new FCI does a better job of illustrating the tightness of US financial conditions than various other measures. But our own FCI has had a better record at capturing turning points in real activity in recent decades, is timelier, more versatile, …
The shift to fixed mortgage rates and the rise in the number of homes owned outright means that while some borrowers face a sharp rise in mortgage payments other homeowners will sit out this interest rate cycle entirely. The most vulnerable group is …
The long NHS waiting lists may be one reason why some people are unable to work and may therefore be contributing to inflation being higher in the UK than in other major economies. As the NHS waiting list is unlikely to shorten soon, we think that …
5th July 2023
Press reports suggest that Department of Finance Secretary Jenny Wilkinson is the front-runner to become the next Governor of the Reserve Bank of Australia, though Treasury Secretary Steven Kennedy and RBA Deputy Governor Michelle Bullock are in the …
Processed food inflation hit a fresh high in May but the recent moderation in food import prices as well as likely declines in domestic fertiliser prices suggest it will soon start to moderate. Food inflation reached an eye-watering 15.5% in the euro-zone …
The Reserve Bank of Australia’s decision to keep rates unchanged at 4.10% today suggests that interest rates may not rise all the way to 4.85% as we expect, but further tightening still seems likely . Today’s decision was a very close call: 15 economists …
4th July 2023
The latest PMIs suggest that not only did global manufacturing activity contract at the end of Q2, but the outlook for the manufacturing sector also seems to have deteriorated further. At least the improved supply-demand imbalance seems to be having an …
3rd July 2023
The Bank of Canada’s quarterly business and consumer surveys showed a broad decline in inflation expectations and are consistent with a renewed slowdown in GDP growth. The Bank could use those developments to justify keeping interest rates unchanged at …
30th June 2023
Reconciling the slide in Japan’s currency with big flows into its stock market from abroad and a perception that the appeal of foreign bonds to Japanese investors has waned in response to high hedging costs is easier to do once securities transactions …
World trade fell in April and timelier data point to a further fall in May, partly due to a sharp drop in Chinese exports which reversed all of their rebound from earlier this year. And weak demand looks set to weigh on trade in the months ahead. …
29th June 2023
At first glance, there’s little sign of friend-shoring among Japanese firms as they have directed a rising share of their outward foreign direct investment at China. However, this largely reflects China’s rising economic heft and firms are reducing their …
26th June 2023
June’s flash PMIs suggest that not only has activity in advanced economies slowed at the end of Q2, but the outlook has also deteriorated further. This is particularly true in the manufacturing sector, where orders have fallen sharply. Meanwhile, …
23rd June 2023
Near-term risks ease, but still high Easing financial conditions, improving consumer sentiment and the stabilisation in housing suggest that the risks of an imminent recession have eased slightly. Nonetheless, our tracking models still imply that an …
22nd June 2023
The reduction in office demand due to remote work will cause a hit to NOIs on a par with, or worse than, that experienced by malls over the last six years. And in line with the experience of malls, the structural nature of this hit to demand means the 35% …
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday, 19 th July . Register here to join that 20-minute online briefing. The 50 basis point (bps) interest rate rise by the Bank of England today, …
Our new Dashboard allows clients to track the key housing market indicators that we follow in real time. (See here .) This Update outlines what has driven recent developments in these indicators, and our view for the rest of the year. (See also our US …
21st June 2023
