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The Reserve Bank of Australia is considering actively selling its bond holdings rather than merely letting them shrink gradually via bond redemptions. The main motivation seems to be to reduce interest rate risk on its balance sheet rather than to tighten …
21st June 2023
We don’t think growing enthusiasm about AI will be enough to stop the S&P 500 from declining if, as we expect, the US economy falls into recession later this year. Nonetheless, we now think the index will end this year a bit higher than we’d previously …
20th June 2023
Housing continues to shrug off high interest rates The recovery in house prices continued in May, with the sales-to-new listing ratio pointing to further gains ahead. Rising interest rates will have a more limited impact on home purchases than existing …
19th June 2023
Note: We’re talking inflation and the BOJ, slowing Indian growth, and regional monetary easing in our Asia Drop-In on Thursday, 22 nd June. Register now . The female participation rate has surged over the past decade but more favourable attitudes among …
At face value, the recent improvement in market sentiment indicators supports the view that the worst may be past for housing. But looking deeper, we think this largely reflects supply-side improvements and will not be enough to prevent further weakness …
16th June 2023
We now suspect growing euphoria over AI will drive the S&P 500 to a significantly higher level than we had previously forecast by the end of next year. In the meantime, though, we still think a mild economic downturn may take some heat out of the stock …
The latest MSCI data indicate that values in western European office markets have held up better since the start of the pandemic when compared with the US and UK. But given these cities face similar long-term problems, we remain downbeat about the …
How low Fed and ECB policy rates will go, when they are eventually normalised, is at least as important for financial markets as the precise timings of the ends of tightening cycles, in our view. We think both central banks will cut deeper than investors …
Note: We’re talking inflation and the BOJ, slowing Indian growth, and regional monetary easing in our Asia Drop-In on Thursday, 22 nd June. Register now . The Bank of Japan left its monetary policy settings and assessment of the economy unchanged today. …
Although we no longer expect Gilts to outperform in local-currency terms, we do think they’re set to hold up better against Treasuries and Bunds over the rest of this year than they have done lately. Gilts have seen a renewed sell-off lately. The 10-year …
15th June 2023
As expected, the Fed held its policy rate unchanged at between 5.00% and 5.25% today, but it made clear in the accompanying statement that pause was only to allow officials to “assess additional information and its implications for monetary policy”. In a …
Florida and other parts of the Sunbelt (notably major cities in Texas) will likely face the most severe physical climate risk over the next 30 years. While this is unlikely to come as a major surprise, we don’t believe that this risk is being consistently …
14th June 2023
While selling its exchange-traded fund (ETF) holdings at book value to the government wouldn’t impair the Bank of Japan’s balance sheet, we don’t think it would provide the boost to fiscal revenue that policymakers seem to be hoping for. And while the …
One reason for the slump in productivity is that the recent surge in working hours is producing diminishing returns. And we suspect that disruptions caused by the pandemic prevented firms from stepping up business investment in response to record capacity …
13th June 2023
With less than a year and a half to go until the next general election, calls for the Chancellor, Jeremy Hunt, to cut a range of taxes have been growing. But recent economic developments mean the Chancellor is unlikely to have much fiscal firepower …
12th June 2023
Our updated industrial metros analysis, which now incorporates the current vacancy rate, continues to point to Memphis as having the strongest prospects for rent growth over a three-year horizon. Miami, Orlando, San Diego, LA and Nashville also rank …
8th June 2023
Refinancing risks increase The recent upward revision to our mortgage rate forecast and the fact that the majority of those that need to refinance this year are on two-year fixes means that we are now more worried about the risk posed by refinancing. …
Recent economic difficulties have forced online retail to tighten their returns policies. At face value, this seems good news for retail property as it may shift demand back to stores for certain categories. However the change is unlikely to be a big …
Normalising supply could make future drop in demand more damaging The significant improvement in the RICS survey in May echoed the pause in house price falls in the past few months. But the survey also showed an increase in supply, which could …
The Bank of Canada’s 25bp interest rate hike today is unlikely to be the last, with the rapid turnaround in the housing market and concerning underlying inflation dynamics raising the case for at least one more hike in July, to take the policy rate to …
7th June 2023
According to our proprietary interest rate-sensitive indicators, activity in advanced economies has so far proven remarkably resilient to higher interest rates. A lot of this has been due to a rebound in auto sales related to pandemic distortions, whereas …
In response to the hawkish shift by RBA Governor Lowe and the further acceleration in unit labour cost growth, we now expect the Bank to lift the cash rate to 4.85% by September. That aggressive monetary tightening will push the Australian economy into a …
The resolution of the debt ceiling debate has cleared a cloud that was hanging over the US equity market, but we think a darker one – a growth slowdown – still lingers. That’s why we doubt the rest of the year will be particularly positive for the S&P …
6th June 2023
Many of the factors that explain the UK’s chronically weak GDP growth since the pandemic, such as the shrinking of the UK’s workforce and low export growth, won’t disappear any time soon. This explains why we expect the UK economy’s underperformance to …
The Reserve Bank of Australia lifted the cash rate by 25bp today and the hawkish tone of the statement suggests that the risks to our terminal rate forecast of 4.35% are tilted to the upside. Indeed, we still think that the Bank will cut interest rates …
The recent decline in the number of job vacancies suggests that the upward pressure on wage growth from labour shortages is probably past its peak. But it’s still not clear that wage growth will slow fast enough to ease the Bank of England’s concerns over …
5th June 2023
Job vacancies haven’t surged in Japan because the participation rate has risen since the start of the pandemic and there hasn’t been a “Great Resignation” amongst Japanese workers. With the labour market set to loosen this year, wage growth will remain …
In a recent Global Markets Update , we analysed the remarkably narrow rally in the S&P 500 so far in 2023. We concluded that recent history supported our forecast that the rally will run out of steam before long, albeit with the largest firms potentially …
2nd June 2023
It comes as no surprise to see a sharp downgrade to consensus forecasts given the combined impact of the regional banking crisis and growing office sector distress. But despite those downgrades, our own forecasts are considerably more downbeat, …
Although activity in the manufacturing sector looks to have improved somewhat in May, that was mainly due to stronger growth in some large emerging markets. The outlook for industry remains bleak, with new export orders in particular falling sharply. The …
1st June 2023
Although the economy weathered the cost of living crisis much better than most expected, the full force of the cost of borrowing crunch has yet to be felt. And with it looking as though interest rates need to rise further to quash inflation, we think the …
The debt ceiling deal constitutes a modest fiscal tightening, principally because it will guarantee the resumption of student loan repayments this summer, but we aren’t worried that the post-deal surge in Treasury debt issuance will push up borrowing …
The April JOLTS data suggest that the gradual easing in labour market conditions continues, which is putting downward pressure on wage growth. Although the job openings rate edged back up to 6.1% last month, from 5.9%, the timelier data from Indeed …
31st May 2023
Although world trade rebounded in March amid the reopening recovery in China, we don’t think this marks the beginning of a broader turnaround in global trade. In fact, timelier data point to renewed falls in April, and the latest business surveys suggest …
We think that the slump in demand for mortgages will more than offset the support from the high backlog of work and result in a sizeable contraction in euro-zone construction output in the coming quarters. Euro-zone construction output – which accounts …
30th May 2023
High net immigration helps explain why rental growth accelerated to its fastest pace on record last year. Immigration won’t be as high this year, adding to the reasons to think that rental growth has peaked. But strong pay growth, high mortgage rates and …
The upward revision to our Bank Rate forecast suggests that mortgage rates will return to a similar peak as last autumn by the end of the year. That would undermine the recent pick-up in mortgage approvals and lead to renewed falls in house prices. Higher …
Many commentators have pinned the recent outperformance of Japan’s stock market on the stronger focus by Japanese firms to maximise shareholder value. But while those efforts showed some success in the run-up to the pandemic, there hasn’t been much …
While it is a hot political potato, well targeted migration could be one part of the solution to the UK’s labour shortages problem. That could help inflation and interest rates be lower than otherwise. Net migration of 606,000 in the year to December 2022 …
25th May 2023
The debt ceiling stand-off will probably now drag on into early June, setting up the prospect of a near-default before a bipartisan bill is finally passed by Congress, possibly only after a more serious bout of market turmoil. The risk of a formal debt …
The increase in mortgage rates has been the main determinant of the size of house price falls in developed market economies. Very tight supply in the US, and to a lesser extent the UK, has also supported prices in those markets. Employment, incomes, …
The most troubling aspect of April’s inflation data, released earlier today, was evidence that price pressures are becoming increasingly domestically generated. Accordingly, we now expect the Bank of England to raise interest rates further than we …
24th May 2023
Perhaps the most remarkable feature of this year’s rally in US equities is just how narrow it has been. We think history suggests that this bodes poorly for the S&P 500’s prospects over the rest of this year. While the S&P 500 has returned ~9% in the year …
The decision by the Reserve Bank of New Zealand to lift its official cash rate by 25bp, to 5.50%, was in line with what most had anticipated. However, with the Bank sounding more dovish than it has in the recent past, we think its hiking cycle is now …
May’s PMIs suggest that activity in advanced economies has continued to hold up well amid a strong rebound in the service sector. Meanwhile, weak demand for manufactured goods is weighing heavily on the outlook for industry. And although this means that …
23rd May 2023
The rebound in global auto production and sales over the past year has been partly responsible for the better-than-expected activity data over the past several months. And with auto sales in most advanced economies still well below pre-virus levels, there …
National GDP data released so far suggest that euro-zone exports rose in Q1. However we suspect they will be more subdued in the coming quarters as a result of weak global growth. We have recently investigated the reasons behind the strength of euro-zone …
22nd May 2023
More convincing evidence of a loosening in the labour market and an easing in labour costs growth has started to emerge. It may not prevent the Bank of England from raising interest rate above 4.50%. But it does tentatively support our view that the peak …
Most of the recent acceleration in services inflation reflects pass-through of higher goods prices. While firms have become more willing to pass on higher input costs, we still think that sluggish wage growth and the recent slump in import prices means …
Although monetary tightening has been a drag on equities over the past year or so, we don’t think the end of rate hikes means the stock market is set for big gains. Rate hikes among developed markets look to be drawing to a close . In particular, we think …
19th May 2023
