Too much inflation can spell trouble for equities if it results in tighter real monetary policy or slower growth. But while we expect inflation to pick up in the US, we do not expect either of those outcomes anytime soon. That is a key reason why we …
10th March 2021
Dutch GDP fell much less than the euro-zone average last year and, even though the economy is unlikely to avoid contraction in Q1, we think it will regain its pre-crisis level sooner than any other major euro-zone economy. Next week’s election should not …
Industrial metals prices have soared recently to multi-year highs. But we think the rally is unsustainable. In fact, it cements our view that slowing growth in China will drag prices lower by end-2021 . After rebounding from their virus-induced lows early …
The rise in US Treasury yields poses a risk for those EMs with large external financing needs such as Turkey as well as some smaller frontier markets, and could force central banks in these countries to tighten monetary policy. The accompanying rise in EM …
Even as Sub-Saharan Africa gradually opens its doors to visitors, tourism sectors in the region face serious hurdles and we think that African economies dependent on the industry may be one of the slowest to recover from the coronavirus crisis. Tourism …
A series of strong inflation readings in Russia have put the central bank’s ability to meet its inflation target over the next year under threat and brought forward the prospect of monetary tightening. We think the central bank will use its meeting on 19 …
Japan’s manufacturers are not suffering from the severe supply shortages that are plaguing firms in other advanced economies. This reflects lessons learned from the Great East Japan Earthquake and a low reliance on imported components. Indeed, the surge …
Today’s dovish speech by RBA Governor Lowe supports our view that the RBA is set to keep monetary policy accommodative for a long time to come. But concerns about the functioning of the bond market may force the RBA to stop QE by the end of the year. …
While labour market conditions are probably not quite as strong as the Labour Force Survey (LFS) measure of employment suggests, they do not seem to be as weak as the Survey of Payrolls, Employment and Hours (SEPH) implies either. Ultimately, with the …
9th March 2021
Financial market-based measures of inflation expectations have returned to pre-pandemic levels, but consumers’ and firms’ expectations are generally more subdued, and the increase in industrial firms’ expectations seems to be due to short-term supply …
We think that the recent outperformance of the MSCI Japan Index relative to the MSCI USA Index will continue as the world slowly gets back to normal. After lagging for most of 2020, the MSCI Japan Index has been one of the best-performing developed market …
The global semiconductor shortage appears to be largely the result of a strong revival in demand for goods including consumer electronics rather than pandemic-related supply disruptions. It should generally have limited implications for GDP, but it could …
The annulment of left-wing former President Lula’s criminal convictions has significantly increased the likelihood of a looser fiscal stance, which could put Brazil’s public debt back onto an unsustainable path. The central bank is more likely to hike …
A quick economic recovery, sustained fiscal support, and the housing-specific measures in the Budget mean it is likely that policymakers will successfully mitigate the adverse impact of the pandemic on the housing market. As a result, we now think that …
8th March 2021
China’s trade data for January-February show a clear deceleration in the growth of commodity imports. We expect this trend to persist over the course of this year as policy support is gradually withdrawn . China’s export growth surged to a 26-year high of …
We think the recent jump in bond yields will not continue and, though we think that they are unlikely to drop back to their previous lows, supportive valuations against bonds will limit upward pressure on commercial property yields. As seen in other …
The slow progress in rolling out vaccines in New Zealand means that its border may only be reopened by the end of this year. With net migration boosting population growth by around 1%-pt per annum before the virus struck, we’ve lowered our forecast for …
Although Democrats are close to securing passage of nearly all the $1.9trn originally requested by President Joe Biden in his American Rescue Plan, which is significantly more than the $1trn in additional money we had originally assumed would be coming …
6th March 2021
In the US, this week’s slide in equities in the face of a renewed rise in real government bond yields might seem puzzling, given the rosy prospects for the economy. But the argument that the stock market should be indifferent to rising TIPS yields if they …
5th March 2021
Greater availability, lower prices and proximity to NYC have supported demand for Boston apartments during the pandemic. That implies demand may edge back as the country reopens, and some workers return to NYC. Rental growth is therefore likely to …
The rise of government bond yields in the US and other developed markets (DMs) this year has made a significant impact on currency markets and, if it continues, would challenge our forecast for a weaker dollar. For most of last year, the primary driver of …
The reports delivered at today’s opening of the National People’s Congress (NPC) confirm that with the COVID-19 downturn now in the rear-view mirror the focus of China’s leadership has shifted away from shoring up near-term growth towards putting the …
Slower demand growth and an abundance of supply will limit gains in oil prices over the long term, which we think will ultimately prevent oil from featuring in the next commodity supercycle . As we recently outlined in a Commodities Watch , commodity …
4th March 2021
Our in-house demand proxies offer further evidence that industrial metals prices are running ahead of the underlying fundamentals. This helps to explain the sharp drop in industrial metals prices since the end of February and supports our view that they …
A few weeks ago, we nudged up our Treasury yield forecasts for year-end 2021 and 2022, to 1.5% and 1.75% respectively. While intra-day yields exceeded 1.6% at one point last week, we don’t expect a continuation of those rises this year. And the bigger …
We don’t expect the recent rise in US bond yields to turn into a rerun of the 2013 Taper Tantrum. But even if US real yields continued to grind higher, we think that EM assets and currencies would be better placed to cope than in 2013 . The recent …
The Saudi government’s efforts to improve the Kingdom’s business environment and attract foreign direct investment in recent years haven’t had the desired effect. One result is that the government is likely to lean heavily on the sovereign wealth fund, …
While Australia’s non-iron ore export volumes to China have slumped by 40% over the past year, coal miners have been able to divert their shipments to other countries. The upshot is that the conflict isn’t as damaging to Australia’s economy as many think. …
Bank Negara Malaysia (BNM) left its main policy rate on hold at 1.75% today, and we have taken out the cut we had pencilled in for this year. However, with the economic recovery likely to be slow, policy is set to remain loose for a long time to come . 19 …
The Central Bank of Sri Lanka (CBSL) left policy on hold today amid continued volatility in global financial markets. Given the poor outlook for the economy, the CBSL will want to resume its easing cycle soon, but that will only happen if pressure on the …
A fresh allocation of IMF Special Drawing Rights (SDRs), if implemented, would provide a welcome boost to the depleted foreign exchange reserves of some distressed frontier economies. But an allocation wouldn’t address underlying dire debt dynamics, …
3rd March 2021
The Polish central bank’s latest forecasts, published this afternoon, tell a story in which the economic recovery will strengthen over the coming years and inflationary pressures will pick up strongly. But we think that policymakers will tolerate higher …
The prolonged reduction in Stamp Duty, a new mortgage guarantee scheme, and an extension to the furlough scheme should sustain high transactions volumes and prices throughout most of this year. There will still be challenges in Q4, when we expect the end …
Around half of the four million decline in the labour force over the past year reflects a wave of early retirements which is likely to be irreversible. The smaller 2.3 million drop in prime-age participation is almost entirely due to pandemic-related …
The reported (but unconfirmed) devaluation of one of Nigeria’s exchange rates would help to improve the public finances, but it would keep already strong price pressures elevated. We doubt that the latest tweak in Nigeria’s FX market will culminate in a …
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Budget speech at 12.30pm on Wednesday 3 rd March and to provide some instant context. We will send a Rapid Response and a Focus …
The 14 th Five-Year Plan should provide a revealing view of the key challenges that China’s leadership believes it faces. High among them is a more hostile global environment. In the economic sphere, this will be reflected in calls to raise …
The underwhelming vaccine rollout in Europe will probably delay the easing of restrictions and means that the best of the vaccine bounce will be pushed into Q3. That said, the planned EU-wide vaccine passport offers a lifeline for tourist-dependent …
2nd March 2021
President Biden’s ‘American Rescue Plan’ has been cited as one the key factors in the recent run-up in commodity prices. But even if it is passed in full, we think it will do little to boost commodity demand . The proposed $1.9trn fiscal stimulus in the …
If real yields continue to rise we could see the Fed shifting the composition of its monthly asset purchases to focus more on the long end of the curve, but we doubt that it would be willing to adopt an explicit yield control target, particularly not as …
The full breakdown of Q4 GDP data for Central Europe showed that net trade exerted a drag on growth in Poland while it provided a boost to Czechia and Hungary. But looking ahead, mounting headwinds to the recovery mean that we now expect GDP to grow only …
The growing strains in Brazil’s health system caused by the latest COVID-19 outbreak are likely to result in a further tightening of containment measures in the coming days, hitting the economic recovery. Pressure for more fiscal support is likely to …
The outlook for Pakistan’s economy is improving. Low virus cases, an easing of restrictions and a jump in the most recent activity data are prompting us to revise up our growth forecast for this year. Pakistan has recorded a daily average of just 1,300 …
While it is still early days, the ingredients for a sustained pick-up in inflation over the next few years seem to be falling into place in the US. It is a different picture in other developed economies; indeed, we still think that medium-term inflation …
Recent rises in government bond yields do not change our view that office and industrial yields will edge down a bit further in the next year or two. In fact, we don’t expect broad-based upward pressure on property yields until after 2023. Following the …
The fiscal support that Japan’s government provided during the pandemic wasn’t as large as headline figures suggest. Accordingly, the withdrawal of stimulus will be a smaller headwind to the economy than most expect, which is one reason we believe that …
The Reserve Bank of Australia today doubled down on its commitment to keep monetary policy settings loose and we reiterate our view that it will expand its bond purchase program by another $100bn in June. The Bank kept its target for the cash rate and the …
February’s manufacturing PMIs released across the emerging world were the proverbial mixed bag but, taken together, generally point towards solid EM industrial production growth in the next month or two. There are signs under the hood of supply …
1st March 2021
February’s global manufacturing PMI survey painted a positive picture, implying that output growth has continued to accelerate outside China and that employment is picking up. Supply shortages are boosting input prices, especially in DMs, but this …
