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The shares of the very biggest, ‘mega-cap’, firms have generally outperformed those of smaller ones by less in Europe than they have in the US on net so far this decade. We expect that to remain the case through the end of 2025, as bond yields drop back …
10th May 2024
Although the recent weakness in exports from China suggest that a sharp rebound in global goods trade probably isn’t on the cards, we still expect global trade to rise this year after a very weak 2023. And while conflict in the Red Sea has caused some …
Lawmakers' current efforts to restrict institutional buying of single-family homes won't put downward pressure on house prices if enacted, as their market share is minimal. Investors ramped up buying of homes in 2021-22, a trend that has raised concerns …
9th May 2024
We’ll be discussing the outlook for Bank of England policy in a 20-minute online briefing at 3pm today. (Register here .) While leaving interest rates at 5.25% today as widely expected, the Bank of England gave the impression that it is close to cutting …
Increasing supply points to softer price growth While sales volumes were robust in April according to the RICS Residential Market Survey, stalling demand and increasing supply suggests that prices will continue to stagnate over the coming months. The …
All signs are that unit labour cost growth in New Zealand will plummet in the coming quarters. Coupled with subdued domestic demand, that should feed through to lower non-tradables inflation in short order. The upshot is that the RBNZ’s forthcoming easing …
The RBA’s decision to leave rates on hold at its meeting today suggests that there is a high bar for any further tightening of monetary policy. Indeed, the Board seems keen on minimising the collateral damage to the economy from its war on inflation. On …
7th May 2024
Banks easing credit conditions amid soft demand The second-quarter Senior Loan Officer Opinion Survey revealed that, a year after the regional banking crisis, only a modest net share of banks are still tightening lending standards. The Net percentage of …
6th May 2024
Inflation in Norway has been falling faster than Norges Bank expected for some time, but with the core rate still a long way above target, today’s communications show that policymakers are not counting their chickens. While they now seem to envisage …
3rd May 2024
The latest manufacturing PMIs suggest that global industry continued to recover at the start of Q2, but that this was entirely due to higher output in emerging markets, while activity remained much weaker in advanced economies. Meanwhile, the increase in …
2nd May 2024
Our forecast that the Bank of Canada will cut interest rates earlier and more aggressively than the Federal Reserve means that the loonie is likely to depreciate, but we doubt the move will be large enough to push up imported goods inflation …
Many central banks are concerned about the fact that services inflation has remained too high. But we think the risks in Switzerland are skewed to the downside and, in our view, outweigh the upside risks from goods prices. This leaves us comfortable with …
With downtowns generally suffering most from the growth in remote work, the hardest-hit cities such as San Francisco are now seeing this impact other revenue streams too, not least tourism. While there are promising signs that conversions from office to …
Euro-zone construction output picked up at the beginning of this year but we don’t think this was the beginning of a sustained rebound. Surveys suggest that output will decline in the next few months, and while rate cuts should support a recovery later in …
We envisage cyclical sectors generally continuing to outperform defensive ones in the S&P 500 through the end of 2025. That reflects our view about the economic outlook; our expectation that hype around artificial intelligence (AI) will grow; our forecast …
Rapid growth in unit labour costs poses an upside risk to core inflation in many advanced economies. However, firms’ pricing power is weakening and we think that it will continue to do so. As a result, higher labour costs will not be passed on in full and …
Fed biding its time Fed Chair Jerome Powell argued in his post-FOMC press conference that, despite the stickiness of inflation in recent months, additional interest rate hikes were still “unlikely”. Moreover, while he admitted that the strong start to the …
1st May 2024
Dollar’s strength not a threat to US economy The dollar’s rise is attracting a lot of attention, but is nowhere near big enough yet to have any significant impact on US inflation, although it does appear to be weighing on exports. In real trade-weighted …
The March JOLTS data showed clearer signs that labour market tightness is continuing to ease. Slower downward progress in wage growth could be concerning, but for now it still appears to be moving broadly in line with the forward-looking indicators, which …
House prices continue to temper their gains The housing rebound that began early last year continued to lose momentum in April. With affordability likely to remain stretched for the foreseeable future, house price growth will only ease further in the …
The anti-dumping duties that the EU is likely to impose on Chinese imports in the coming months will have little macroeconomic impact. But more goods will be targeted in the next couple of years with significant implications for some sectors and …
30th April 2024
Trump, the Fed, and the dollar Most of the major policy initiatives being suggested by Donald Trump’s campaign would be inflationary; whether it’s narrowing the trade deficit via tariffs or a dollar devaluation, curbing immigration or, now we learn, …
29th April 2024
The Ministry of Finance may have intervened earlier today by selling FX reserves to halt the sharp fall of the yen. However, the economic case for foreign exchange intervention is much weaker now than it was in 2022, when the MoF last sold dollars to …
While the headline of the Q1 NCREIF NPI data (-0.9% q/q total return) suggests we could be near the end of the price falls, we think this simply stored up bigger falls for the rest of the year. The growing share of underwater loans, as well as the far …
26th April 2024
We think the recent recovery in the share prices of some of the ‘Magnificent 7’ is a sign that the earlier pull-back in their collective performance wasn’t a harbinger of a far bigger correction in the NASDAQ 100. On the contrary, we suspect that index …
While overall surveyor sentiment remains negative, the Q1 RICS survey appeared to show a divergence in views between respondents of where in the cycle the market currently is. We think the apparent differences in views stem from the growing discrepancy …
The continued decline in core inflation will make it difficult for Norges Bank to stick to its current guidance that it will leave interest rates unchanged until Q4. We suspect that the Bank will change its forward guidance next week to acknowledge the …
The Bank of Japan is getting more confident in meeting its inflation target on a sustained basis and signalled that inflation wouldn’t have to overshoot for policy to be tightened further. Nonetheless, policy rate hikes will become difficult to justify …
The plunge in inflation in Tokyo in April was mostly due to a sharp fall in high school tuition fees and the provision of free school meals. The impact of those policy changes on nationwide inflation will be much smaller and they won’t affect the Bank of …
Foreign-born workers have been entirely responsible for the post-pandemic recovery in employment. But a gradual rise in labour market participation and a moderation in net migration may mean the share of UK-born employment starts to rise again. The risk …
25th April 2024
A later start to Fed rate cuts than we anticipated will push the fall in mortgage rates and recovery in activity into the second half of the year. But as we think that the Fed Funds rate will eventually be cut by more than markets have currently priced …
Although the BLS’s new tenant rent index has overstated the speed of the slowdown in shelter inflation, the leading indicators remain unanimous in their message that the slowdown is still coming. Despite some larger monthly rises in core goods and …
23rd April 2024
The latest e-commerce statistics suggest that the pandemic has left US online sales on a permanently higher trend. That will be bad news for retail rents generally, though the detailed data also hint that there may have been a return to physical shopping …
The latest flash PMIs suggest that GDP growth picked up in most advanced economies at the start of Q2. But stronger services activity risks keeping price pressures elevated in some DMs. The flash PMIs for April suggest that economic activity picked up in …
If sustained, the recent rises in market interest rate expectations and gilt yields may mean that the Chancellor has only around £5bn of fiscal headroom, down from £8.9bn in the March Budget, with which to fund further tax cuts before the next election. …
We now expect services inflation to remain around 2% this year as a fading tailwind from soaring hotel and package tour prices will be offset by stronger labour cost growth. The upshot is that the Bank of Japan will probably lift its policy rate once more …
Higher Treasury yields, a resilient US economy, and relatively low valuations are three reasons why we now think that the future for US banks in general is a bit brighter. The share prices of banks in the S&P 500 have underperformed the overall index …
19th April 2024
On the face of it, core disinflation seems to have stalled or even reversed in the US but not in Europe, suggesting that Fed cuts will come much later than those by the ECB and BoE. However, there are definitional issues at play that exaggerate the recent …
18th April 2024
We think it is most likely that future governments bring down Belgium’s budget deficit sufficiently to put its debt on a sustainable trajectory. However, the risks are that the deficit is higher than we forecast because of Belgium’s divided political …
17th April 2024
Although Finance Minister Chrystia Freeland stuck to her previous pledge to keep the budget deficit below $40bn in the new fiscal year, she nonetheless spent the small windfall afforded to the government thanks to stronger-than-expected revenue growth. …
16th April 2024
As the plunge in employment in Q1 is probably a response to the recession last year, employment will probably soon rebound now that the economy is growing again. The real risk is a rebound in job vacancies prevents wage growth from falling as fast and as …
New housing policies to provide only modest support The government’s policies to boost affordability for first-time buyers will have only a modest impact on demand, but they still add to our sense that house prices will rise in the coming years. While …
The resilience of Swiss GDP over the past two years has been largely due to the merchanting sector, which buys and sells goods without them ever entering Switzerland. Excluding that sector, the economy was smaller at the end of 2023 than it was two years …
Our analysis shows that for CPI inflation to get stuck above 2.0% it would require oil prices and UK wholesale gas prices to rise to $110 per barrel and 150 pence per therm respectively. And for CPI inflation to return to 5.0%, it would require increases …
15th April 2024
Weak capital spending is a key reason for Australia’s poor productivity performance. While investment growth has been strong recently, we think it will take until the second half of this decade before the level of capital spending is high enough to return …
Ben Bernanke didn’t pull any punches in his review of the Bank of England’s forecasting/communications and recommended a full revamp of the Bank’s main forecasting model, using alternative scenarios to express uncertainties rather than fan charts and …
12th April 2024
We think ‘value’ stocks will generally underperform their ‘growth’ counterparts while a bubble in the US stock market continues to inflate, even if Treasury yields don’t drop back in the way that we expect. Depending on your perspective, value stocks – …
The Bank of England’s Q1 Credit Conditions Survey provides further evidence that the drag on activity from high interest rates is starting to fade. Looser credit conditions will soon aid the economic recovery. The fall in mortgage rates at the start of …
11th April 2024
Even if the US Federal Reserve leaves its policy rate unchanged for longer than we expect, our forecast that inflation in the UK will be lower than in the US suggests this won’t prevent the Bank of England from cutting rates from 5.25% to 5.00% in June …
Governor Tiff Macklem sounded relatively dovish in the Bank of Canada’s press conference today, leaving the door open to an interest rate cut at the next meeting in June. While the Bank left the policy rate at 5.0% today, the policy statement and …
10th April 2024
