The substitution of coal for natural gas in European power generation has reversed in recent months, but we doubt that this marks the start of a new trend. Instead, we think that gas-based power in Europe will become increasingly price competitive in the …
11th December 2020
One of the biggest upside risks to our forecasts is that households spend the extra savings that they have accumulated during the past few months. If they do, North America and the UK look likely to benefit more than the euro-zone. Chart 1 shows that …
Victory for Nana Akufo-Addo in Ghana’s presidential election this week increases the likelihood of fiscal stimulus in the near term, which would support the economic recovery. But the precarious state of the country’s public finances mean that austerity …
Although the level of “Equity Q” for the US non-financial corporate sector has risen to a record high, we are wary of concluding that the stock market is in an unprecedented bubble that is bound to burst. To re-cap, Equity Q – which was popularised by the …
Latin America will be glad to see the back of 2020, although 2021 will hardly be plain sailing. In general, the hangover from weak public finances will hold back the region’s economic recovery relative to others in the emerging world, suggesting monetary …
10th December 2020
While US corporate credit spreads are now close to their pre-pandemic levels, we think that they will fall further in general as the global economy recovers with the help of vaccines. Back in the summer, when the option-adjusted spreads (OAS) of ICE BofA …
The ECB’s message that it will persist with its flexible asset purchase programme until at least early 2022 should reassure investors that there will not be a reversal of the compression of bond yields anytime soon. Beyond then, there is a little more …
We forecast that a substantial pick-up in oil demand in the second half of next year amidst a backdrop of constrained supply will push Brent oil prices to around $60 per barrel by end-2021. That said, there are clear downside risks, the most notable being …
We think that the inverse relationship between the dollar and risk appetite will remain strong over the next couple of years, against a backdrop of low and stable interest rates. We expect that the dollar will weaken further and risky assets continue to …
Parliamentary elections in Romania that took place on Sunday look set to result in the incumbent centre-right PNL party forming a new coalition government. A new PNL-led coalition would probably pursue a more conservative fiscal stance over the coming …
We expect that the price of gold will trade at around $1,900 per ounce through 2021 as US real yields remain low. That said, we recognise that there are some key downside risks to our forecast. US nominal yields could surge and investors could intensify …
South Africa’s hard activity data for October serve as a reality check following a decent rebound in GDP in Q3, suggesting that the pace of the recovery slowed markedly at the start of Q4. A second wave of COVID-19 has increased the possibility of a …
The success of the Russian government’s preferential mortgage scheme this year has prompted concerns that a bubble might be forming in Russia’s housing market, but we think this risk is some way off. In fact, low interest rates and an expansion of the …
The statement accompanying the Brazilian central bank’s decision (to keep the Selic rate at 2.00%) suggests that it is starting to consider interest rate hikes. But we think the shift towards monetary tightening will be much more gradual than most …
We expect the recent rise in US inflation compensation to continue as the economy recovers, but doubt that it will be matched by a similar increase in nominal bond yields. As such, we think real yields may fall further. To recap, the 10-year US Treasury …
The capital ratios of Australian banks may decline a bit as loan deferrals come to an end and other policy support is withdrawn. But with capital ratios having almost doubled since the GFC and underlying profitability sound, the banking sector won’t be a …
The key change to the Bank of Canada’s policy statement today was its commitment to “keep interest rates low across the yield curve”. This is in line with our view that, even as the economy rebounds strongly next year, the Bank will prevent the 10-year …
9th December 2020
The recent tightening in coronavirus restrictions means that Greece’s recovery will shift into reverse in Q4 and the start of 2021 is also likely to be weak. However, the rollout of a vaccine by mid-year should pave the way for a strong rebound in …
Failure of Poland and Hungary to reach an agreement with the EU over the veto of the bloc’s budget would have severe political and economic consequences if funds were withheld. Even if a deal is agreed, perhaps as soon as the EU Council meeting on 10-11 …
The confirmation of an effective vaccine in recent weeks has improved the economic outlook. But rising unemployment, a higher exposure to smaller retailers and ongoing travel restrictions will result in standard shop rents continuing to fall next year. …
8th December 2020
The third supplementary budget announced by PM Suga today raises fresh government spending in response to the pandemic to around 12% of GDP. That lifts Japan back up the global fiscal support rankings and lends further support to our view that the economy …
We have now factored the rollout of an effective COVID-19 vaccine into our forecasts and, as a result, we are slightly more positive on the demand outlook for some agricultural commodities. That said, we still expect most agricultural prices to fall over …
An important driver of the surge in home sales over recent months has been households leaving apartments in cities to escape COVID-19 and acquire more space to work from home. But a fall in the share of single-family and completed new homes in total home …
7th December 2020
Brexit is going to get a lot of airtime over the next few hours, days and weeks, especially once the outcome of the call between Boris Johnson and Ursula von der Leyen later this afternoon is made public. But most of the coverage about a deal or no deal …
China’s commodity import volumes should hold up well in the coming months in part because ongoing fiscal support should continue to boost domestic demand . China’s exports surged by 21.1% y/y in US dollar terms to a record high last month, but imports …
A rebound in global economic activity triggered by COVID-19 vaccines will lift the oil market and, in turn, the Gulf economies over the coming quarters. But one legacy of the crisis is that these countries will have to contend with peak oil demand being …
The surge in capital goods shipments in October and solid profit data for Q3 suggest that capital spending is ending the year on a strong note. We’re revising up our forecast for business investment this quarter. The budding rebound also bolsters our view …
Industrial metals prices have surged in recent weeks owing in large part to strong economic activity in China. And while prices should hold up during the first quarter next year, we think that they will ease back by end-2021 as demand growth in China …
4th December 2020
We think the dispute with Hungary and Poland over the EU’s multiannual budget will be resolved one way or another and the EU will start to disburse the Recovery Fund during the first half of next year. This will lift GDP a little in some countries over …
The RBI kept the repo and reverse repo rates on hold today and made an explicit commitment to keep policy “accommodative” for the foreseeable future. Markets are too hawkish in expecting modest rate hikes within the next 12-18 months. The MPC’s unanimous …
China’s rebound from the COVID-19 shock has been swifter and stronger than most anticipated. We think its economy will continue to surprise to the upside for a while, paving the way for PBOC rate hikes and further renminbi appreciation. But the property …
Given the recent positive vaccine developments, we are revising up our GDP forecasts across the region. Among the major economies, Chile and Mexico are likely to be the biggest beneficiaries while Colombia and Peru will be the smallest. Nonetheless, the …
3rd December 2020
Our upcoming Outlook will detail major upgrades to our capital value expectations. Rather than a total fall of around 10% at the all-property level, we now expect the cumulative decline to be just 5%. In mid-November we published an Update which noted a …
With positive news on COVID-19 vaccines increasing the chances of a strong global economic recovery next year, risky assets have rallied over the past month. While we think the stage is set for them to continue to do so, in this Update we identify five …
The distribution of effective COVID-19 vaccines is likely to be much slower in Africa than in many other parts of the world and the “vaccine bounce” in domestic economic activity will probably also be more muted. Those countries that will benefit the most …
In Q3, the balance sheets of developed market banks were in good shape and credit losses stayed ultra-low. Defaults are likely to rise as policy support recedes, but we think the banks are well-placed to cope. Most banks in the US, Japan, and developed …
A weaker CEE rental outlook, coupled with tighter policy and investors’ reassessment of the sector, suggest that the recent widening between CEE and euro-zone office yields has further to go. As the severity of the pandemic became clear, we argued that …
We think that the limited reaction of developed market government bonds to positive vaccine news is a sign of things to come. While the introduction of effective vaccines should help drive a stronger economic recovery early next year, it does not …
2nd December 2020
News about a vaccine has boosted financial markets and we have revised up our global economic expectations for the next two years or so. But while we think that this bodes well for the medium term, next year is still likely to be tough for most property …
The recovery is set to go into reverse in December amid the latest coronavirus restrictions, and we now think GDP will stagnate over the first quarter. But the high effectiveness of the first COVID-19 vaccines increases the chance that economic activity …
November’s headline manufacturing PMIs were generally encouraging and suggest that EM industrial sectors are faring well, even in Central & Eastern Europe where overall GDP will slump in Q4. We expect industrial sectors to continue to lead the EM recovery …
1st December 2020
The global manufacturing PMI rose for the seventh consecutive month in November. Restrictions seem to have weighed on industry in parts of Europe, but nowhere near as much as in March and April. And with recoveries elsewhere still strong, global …
A fresh rise in COVID-19 cases in Brazil and Mexico threaten to derail their recoveries in late-Q4 and Q1. On the flipside, the near-term outlook is relatively bright in Argentina, Peru and Chile. By the end of Q3, Brazil’s economy was relatively close to …
The distribution of effective COVID-19 vaccines is likely to be relatively quick in Emerging Europe, paving the way for robust economic recoveries that will leave economies much closer to their pre-virus trend by end-2022 than most other EMs. Poland is …
