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 …
2nd March 2021
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 …
Saudi Arabia’s economic recovery has continued to be slow going as the tightening of COVID-19 restrictions has weighed on activity. The slow start to the vaccine rollout and the Kingdom’s voluntary oil output cuts this month and last will delay 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 …
In light of our latest long-term economic and financial market forecasts, we have revisited our views for commercial property performance over the next three decades. We think that average returns will be lower than in the recent past, but that property …
China’s February PMI data were more subdued but still suggest that economic activity remains elevated, and the data elsewhere in Asia point to persistent strength in commodities demand in the coming months . The official manufacturing PMI (released …
Record high lumber prices are leading to delays in housing starts, and as result the share of homes for sale that have not been started reached a record high in January. While that will constrain single-family starts in the short term, sales of homes that …
26th February 2021
Despite the rise in EM bond yields over the past week, EM financial conditions remain very loose. Most central banks are likely to look through the accompanying sell-off in currencies (indeed, some may welcome weaker exchange rates). But these moves do …
The recent increases in real bond yields leave them still at low levels, but ECB policymakers nonetheless seem uncomfortable. Their verbal interventions have had little impact so far, so we think that there is a good chance that they will increase their …
We doubt that the Reserve Bank of New Zealand’s new obligation to consider house prices will drastically change the outlook for monetary policy. But given that house price growth remains very strong, there is a risk that the Bank tightens policy earlier …
Given our latest forecast for oil prices, we now expect the Canadian dollar to rise further in 2021 than we previously thought, but to drop back a bit in 2022. Despite already rising more than 15% against the US dollar from the last year’s low, we think …
25th February 2021
Even if nominal government bond yields kept rising this year, we suspect that this would be driven by rising inflation compensation rather than real yields, in contrast with the past couple of weeks. Chart 1 breaks down the increases in 10-year government …
We doubt that Treasury yields will continue to climb rapidly. However, that would be another reason to expect the returns from US REITs to fall short of those from ordinary US equities over the next few years. US REITs appear to have so far largely …
President Biden’s fiscal plan would support the US economy but the positive spillovers to emerging markets via trade are likely to be surprisingly limited. We doubt the Fed would move more quickly to reduce stimulus in response, and external financing …
President Biden’s stance regarding international climate policy and the Iranian nuclear deal is very different from Donald Trump’s, but we are sceptical that he will be able to enact any significant policy change. Accordingly, we think that his foreign …
Although we forecast a further small rise in the 10-year Treasury yield this year, we doubt that this will upend the US stock market. Admittedly, higher Treasury yields increase the “risk-free” nominal rates at which future corporate earnings are …
The surge in average earnings growth to a ten-year high is not what it seems as it’s partly due to large numbers of lower-paid workers losing their jobs. As such, the upward pressure on inflation from earnings growth is much smaller than implied by the …
Fears of a repeat of the 2013 “taper tantrum” look wide of the mark. But even if there was a return to the financial market turmoil of eight years ago, Asian economies are much better placed to cope. Government bond yields in the US have continued to rise …
The Bank of Korea (BoK) left its main policy rate on hold at 0.50% today in a unanimous decision, and while further rate cuts are now very unlikely, we expect more intervention in the government bond market to curb rising long-term yields. The decision to …
The recent fall in the Swiss franc against the euro will be music to the SNB’s ears, and we think that there is plenty of scope for the currency to drift lower over the coming years. Having traded in a narrow range around CHF 1.08 over the past six months …
24th February 2021
If passed in full, President Biden’s $1.9tn American Rescue Plan would constitute a fiscal stimulus worth 1.4% of global GDP, coming hot off the heels of the $900bn deal struck in December. While a boon for the US economy, we think that the economic …
The South African 2021 budget unveiled today was anything but the “non-austerity” budget that Finance Minister Tito Mboweni claimed he was presenting. Indeed, the fiscal plans imply significant tightening and will, if implemented, stabilise the public …
The pound has performed better than all other G10 currencies so far in 2021 (see Chart 1), rising from $1.36 at the start of January to almost a three-year high of $1.41 now. We expect the strength of sterling against the US dollar to continue and have …
We think market participants are getting ahead of themselves by pricing in an interest rate hike from the Bank of Canada in 2022, particularly as Governor Tiff Macklem again signalled yesterday that the Bank will place greater emphasis on employment …
A three-month extension to the stamp duty holiday should prevent sales falling in Q2 even if it does not incentivise much new activity given ongoing delays in conveyancing. And the timeliest data suggests that buyer demand may prove resilient when the tax …
Hong Kong has curtailed some of last year’s emergency spending but today’s budget signals that fiscal policy remains loose. There is room to do more, but the key determinant of the economic outlook is not in the financial secretary’s remit: it hinges on …
Labour markets across Central and Eastern Europe (CEE) have held up well since the start of the pandemic and we think this will continue over the next few years, which will support recoveries across the region. One key risk to this view is that government …
The Reserve Bank of New Zealand (RBNZ) sounded dovish when it left policy settings unchanged today, but we still expect the Bank to begin increasing rates next year. As expected, the RBNZ did not adjust the OCR or its asset purchase program at today’s …
We are raising our forecast for HICP inflation in Germany and expect it to peak at over 3.5% this year. But we doubt that this will prompt any policy tightening by the ECB because aggregate euro-zone inflation will stay much lower, and inflation will drop …
23rd February 2021
Permanent increases in certain types of online sales will mean that regional and super-regional malls underperform the other retail sub-sectors for at least the next two years. Our forecasts point to another 12%-14% of capital value falls in 2021-22 for …
Global aluminium production rose in January. And with LME and ShFE prices near multi-year highs, we expect further gains in production this year, which will ultimately weigh on prices . According to the International Aluminium Institute (IAI), global …
Mortgage arrears have remained very low, casting doubt on our view that we will see a substantial rise in forced selling later this year. But new evidence from the Resolution Foundation shows that policy support remains crucial to households keeping up …
The strong Q4 GDP data for Peru suggests that the economy was heading into 2021 with significant momentum. And while there are growing downside risks from rising COVID-19 cases and a politically contentious vaccine programme, we’re still more upbeat than …
With vaccines improving the economic outlook and labour market data surprising to the upside, we have revised down our unemployment forecasts for almost all major economies. But wider measures of labour market slack imply a growing divergence by region. …
Asia’s vaccine rollout has got off to a slow start. This is not a big concern in countries that have contained the virus and where social distancing is not a drag on growth such as Taiwan and China. But in Malaysia, the Philippines and Indonesia, the slow …
The minutes of the Reserve Bank’s February policy meeting – in which interest rates were left unchanged – show that the MPC remains cautious on the inflation outlook but that it is also committed to keeping policy accommodative to ensure that the economic …
The Bank of Japan is likely to widen the tolerance band around its 10-year yield target next month. The last time this happened, many saw it – wrongly in our view – as a form of policy tightening. It will be driven more by a desire to steepen the yield …
We think that the government’s roadmap for easing England’s current COVID-19 lockdown will direct the economy back to its pre-pandemic size by Q1 2022. With the Chancellor and the Bank of England unlikely to knock the economy off course with tighter …
22nd February 2021
The Brazilian president’s decision to sack the Petrobras CEO last Friday points to greater government intervention in the economy and could be a prelude to a looser fiscal stance too. This suggests that the country’s financial markets are likely to remain …
Commercial banks left the Loan Prime Rate (LPR) unchanged on Saturday. But monetary conditions have tightened in practice since the start of the year. We expect the PBOC to formalise the shift with policy rate increases in the next few months. The …
