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The rapid turnaround in the housing market and the upside surprise to CPI inflation in April have raised the case for another interest rate hike from the Bank of Canada, which we now judge is slightly more likely than not. The potential for US debt …
17th May 2023
After stalling at the end of last year export growth seems to have provided a boost to the euro-zone economy in the first quarter of 2023. However, we doubt that exports will be a major source of growth over the rest of the year given our downbeat …
Inflation is now on a downward trend and interest rates are at, or very close to, a peak. But central banks will only cut interest rates once there are clearer signs that underlying price pressures are under control. That could be as early as later this …
The RBA’s balance sheet has barely shrunk since it decided to stop reinvesting the proceeds from maturing bonds. While pressing ahead with quantitative tightening would make it easier for the Bank to engage in quantitative easing during future downturns, …
16th May 2023
Housing continues to shrug off high interest rates House prices rose by even more than we anticipated in April and the sales-to-new listing ratio points to further gains ahead. Housing starts also jumped last month, but the rising inventory of newly …
15th May 2023
Borrowing over a longer period significantly reduces monthly mortgage payments. So the accelerated shift towards loans with a term of 35 or 40 years rather than 25 has probably helped to mitigate the drag on buyer demand from higher interest rates. Higher …
We think that investors are underestimating the scale of interest rate cuts in the UK next year. If we’re correct, that could propel Gilts to the top of the class for local-currency returns over the rest of 2023. Local-currency returns from ICE BofA’s …
12th May 2023
The sharp rise in US manufacturing construction over the past two years is likely to continue into the medium term as firms take advantage of favourable government incentives. But as these expire, demand for the sector will wane as firms look overseas for …
We doubt sterling’s strong run will continue; we still think that an economic downturn in the UK and other advanced economies will lead to renewed downward pressure on sterling later this year. Despite falling back a bit, to ~1.25 against the US dollar, …
Today’s 25 basis point (bps) rise in interest rates from 4.25% to 4.50% takes rates to our long-held forecast and may be the last hike, although one or two more hikes are possible. We suspect the subsequent holding phase will be fairly long, lasting until …
11th May 2023
While the hiking cycles of all major central banks will soon be in the rear-view mirror, most of their impact on activity lies on the road ahead. Based on the latest national accounts data, we estimate that there is still plenty of scope for higher …
9th May 2023
We think migration patterns of footloose workers will continue to play the largest role in driving the rental outlook across metros. But rent as a share of income will also have a bearing, weighing on prospects in major markets such as NYC, LA and Boston, …
While world trade fell further in February, the available data point to a rise in March, especially due to a strong rebound in China. But that rebound looks to have already reversed in April. And with high interest rates set to weigh on demand for goods …
The recent turmoil in the banking sector doesn’t appear to have triggered a severe further tightening in credit conditions, but since lending standards were already being tightened to a degree only previously seen during recessions, the lack of any …
8th May 2023
Our central scenario is that Italy’s public debt-to-GDP ratio will decline gradually in the long-run. However, the government will need to maintain sizeable primary budget surpluses to make that happen. The European Commission has recently made a series …
5th May 2023
Today’s 25bp decision was in line with market expectations and the views of most forecasters polled by Reuters – though we had been in the minority forecasting 50bp. The move marks a slowing in the pace of policy tightening and suggests at face value that …
4th May 2023
While food CPI inflation remains very high in all major advanced economies – and especially so in Europe – we expect it to fall sharply in the coming year. Energy and labour costs have been key in keeping consumer food inflation so high, but these props …
The slowdown in regular earnings at the start of the year largely reflects sampling changes, with an unchanged sample of firms reporting continued strong wage growth. However, with inflation set to come off the boil before long and the labour market …
The Fed’s new policy statement provides the clearest hint yet that the 25bp rate hike today is likely to be the last. We expect economic weakness and a sharper-than-expected drop back in core inflation to convince officials to start cutting rates again …
3rd May 2023
A bipartisan deal to raise the debt ceiling alongside modest cuts to government spending still appears to be the most likely way out of the current impasse. It's possible that moderate Republicans will step in to help the Democrats push through a …
Although the unemployment rate remains near a record low, the decline in vacancies suggests that labour market conditions have nevertheless eased, supporting our view that wage growth is close to a peak. While the unemployment rate has been unchanged at …
A combination of the falls in global agricultural commodity prices, energy prices and wage growth will soon drag down food CPI inflation from a 46-year high of 19.6% in March perhaps to around 4.5% by the end of the year. Food inflation will soon become a …
Berlin offices have been outperforming those in other German markets for some time. But Q1 data suggest that growth has begun to falter, and we think that the recent strength of the market won’t last. Berlin office rents have risen rapidly over …
The decline in job openings to a near two-year low of 9.6 million in March, from a peak of 12.1 million a year earlier, suggests that, even without a rise in the unemployment rate, labour market conditions are nevertheless easing and are consistent with a …
2nd May 2023
The Reserve Bank of Australia retained its tightening bias when it lifted the cash rate by 25bp at today’s meeting, but we suspect that it won’t raise interest rates any further over the coming months . The Bank’s decision to lift the cash rate from 3.60% …
The collapse of First Republic Bank is no big surprise – it had been teetering on the edge since suffering $100bn in deposit withdrawals mostly in March – but it’s a timely reminder that banking turmoil will continue to flare up periodically. After …
1st May 2023
In our view, the role of UK pension funds in deterring firms from listing on the London Stock Exchange has been overstated of late. To the extent that higher valuations are the reason firms find a US listing more attractive, we think there is good reason …
28th April 2023
Alongside the publication of our Q2 UK Housing Outlook this week, we held a series of roundtable meetings for clients in London. Here we sum up our thoughts on three key questions which recurred throughout the day: What is the biggest risk to our …
The Bank of Japan predicted that inflation will fall well below its 2% target in FY2025 when it kept policy settings unchanged today. And while it pledged to conduct a review into its policy measures, the results will only be unveiled next year. The …
Wage growth in the euro-zone is likely to remain above the level compatible with 2% core inflation this year and only gradually return to a more sustainable level thereafter. For the past year, wage growth has run well above the 3% y/y or so compatible …
27th April 2023
The turmoil in the US banking system is likely to set off the worst decline in Japan’s commercial real estate prices since the Global Financial Crisis by prompting foreign investors to stop buying Japanese assets. In the worst-case scenario, GDP will …
A fall in consumption this year will weigh on the retail sector, but an earlier correction in yields and rents mean it is less vulnerable to the recession. Indeed, it was the only sector to see a fall in yields in Q1. While some further rise in yields …
24th April 2023
Once again the PMIs suggest that real activity in advanced economies continues to shrug off the effects of higher interest rates. According to the flash PMIs, GDP and employment growth both got off to a strong start in Q2, even amid the banking sector …
21st April 2023
The physical risks facing commercial property are substantial with extreme weather events like floods and wildfires set to increase in both the US and Europe over the coming decades. Property markets have yet to fully price these in, especially in areas …
We held an online Drop-In yesterday to present our new financial conditions indices and discuss how conditions have evolved in the wake of SVB’s collapse. (See a recording here ). This Update addresses some of the questions we received, a couple of which …
Note: We’ll be discussing the BOJ’s April decision and the fate of YCC in a 20-minute online briefing at 09:00 BST/16:00 SGT on Friday, 28th April. Register here . While stronger-than-expected data out of Europe and China have weighed on the dollar over …
We would not be surprised if US “growth” stocks outperformed their “value” peers by a bit more in the near term. But we still suspect that growth will underperform value substantially over the longer term. That is informed by our view that the valuation …
As mortgage lenders’ net interest margins are already very narrow, the increase in market interest rates over the past fortnight means that the decline in mortgage rates from their spike after the “mini” budget is now over. It was unusual for swap rates …
20th April 2023
The recommendations by the RBA’s review panel unveiled today were broadly in line with what we had anticipated. While the 2-3% inflation target will be retained, sweeping changes to the Bank’s leadership structure are underway. And with a lot of the …
Housing past the worst, but risks remain House prices edged up in March and the jump in the sales-to-new listing ratio implies they will rise further this quarter. With affordability still very stretched, we assume that there will be a renewed period of …
19th April 2023
The recent undershooting of CPI used vehicle prices relative to wholesale auction prices appears, at least partly, to reflect a squeeze on dealer margins as demand has cooled. The upshot is that we shouldn’t necessarily expect the CPI measure to catch up …
This Update was originally published on 19 th April. We have updated the data, charts and text to reflect the growing divergence between inflation in the UK and elsewhere evident after today’s release of the UK inflation figures for May. Clients can read …
We think investors’ expectations for the Fed funds rate will fall a little by the end of this year, which will push the 10-year Treasury yield a bit lower by end-2023. But we doubt lower “risk-free” rates would be enough to prevent a sharp drop in the S&P …
While US equity REITs are a long way from discounting the “best of times” for US commercial real estate (CRE) over the coming quarters, listed real estate stocks in Europe appear braced for something not far off the “worst of times”. That is a difference …
17th April 2023
Recent events have highlighted that meeting regulatory capital and liquidity requirements does not guarantee that banks will be financially stable. The forthcoming EU bank stress test results should give a better idea of the banks’ health, but those tests …
Shift towards cheaper homes challenges statisticians The divergence between the Nationwide and Halifax House Price Indices (HPIs) of late has cast some doubt on the direction of house prices. A struggle to adjust the statistics for a shift towards cheaper …
The fading effects of the mini-budget meant that bank lending conditions to households and businesses didn’t deteriorate any further in Q1. But the latest credit conditions survey doesn’t capture the full extent of the tightening triggered by recent …
13th April 2023
Despite the cost-of-living crisis, the leisure sector did better than expected last year as households used the savings they had built up during the pandemic to boost spending on recreation and restaurants. But with those savings now exhausted and real …
The Bank of Canada delivered a mixed message today, noting that it is more confident inflation will decline in the next few months, but less confident that inflation will fall all the way to 2.0% as quickly as previously anticipated. Nonetheless, with the …
12th April 2023
We anticipate that the S&P 500 will fall back later in 2023, largely because analysts are far from pricing in a recession in the US that we think is even more likely after the recent banking turmoil. Our forecast is that the index will reach a trough of …
6th April 2023
