While the COVID crisis has prompted an unprecedented fiscal response worldwide, there have been major differences between economies. The US saw large and immediate support, which has already expired without disastrous consequences. China’s infrastructure …
27th October 2020
We think that MSCI’s indices of emerging market (EM) equities in Latin America and EMEA will reverse some of their recent underperformance relative to the MSCI EM Asia index over the next few years, just as they did following their sharp falls during the …
26th October 2020
The overwhelming vote in favour of rewriting Chile’s constitution will set the ball rolling towards entrenching a larger role of the state in the economy. And it may cause the central bank to adopt a more dovish stance in the medium term. This is likely …
The minutes of the Reserve Bank’s October policy meeting – in which policy was left unchanged – show that the MPC has turned more dovish on the inflation outlook and that it has reservations about the strength of the economic recovery. This reinforces our …
October’s batch of flash PMIs supports our view that divergences have emerged in advanced economies, both between sectors and between countries. With Europe dealing with second waves of infections and a new round of restrictions, their recoveries are set …
23rd October 2020
The decision by Russia’s central bank to leave its policy rate at 4.25% today suggests that inflationary concerns are preventing further easing for now. But the communications reinforce our view that interest rates are likely to be cut next year to 3.50%; …
Recent data provide an indication that the virus outbreak will likely result in a faster online transition in Germany. The impact on instore demand will add to the pressures already facing retailers and suggests that there is downside risk to our forecast …
We are sticking to our forecast that the 10-year German government bond (Bund) yield will end this year at around -0.50%, even though it has recently fallen through this level following a renewed surge in COVID-19 cases in Europe. To recap, the yield of …
22nd October 2020
We think that Swiss policymakers would be prepared to match any small interest rate cut by the ECB, albeit reluctantly. However, if policymakers in the euro-zone opt to ease policy in other ways, as we think is more likely, this may help to reduce …
Despite a surge in mortgage applications, holdings of residential loans by commercial banks declined in August and September. We suspect that divergence is due to a rise in mortgage repayments, which would be in line with the jump in the saving rate. In …
Outstanding commercial real estate debt held by banks is likely to rise again in the coming months, providing the improvement in investment transactions seen in September continues. Yet even if there were renewed lockdowns, the deferral of loan payments …
Recent court rulings clarifying the application of the government’s new “equal pay for equal work” law are unlikely to lead to higher labour costs for firms. Most firms already pay their irregular workers allowances for dependents as well as holiday and …
Turkey’s central bank (CBRT) left its benchmark one-week repo rate unchanged at 10.25% today but adjusted its other policy rates to give it more scope to tighten monetary conditions via the ‘corridor’. Political pressure is clearly making the CBRT …
Depressed investment activity and a weak rental outlook are set to put upward pressure on office yields. That said, given that prime property values have been slower to adjust than we had initially anticipated, there is a risk that the yield rise we …
The Central Bank of Sri Lanka (CBSL) left both its deposit and lending rate on hold at 4.50% and 5.50% respectively at its meeting today but, given the poor outlook for the economy, we think the easing cycle has further to run. The decision was correctly …
While the chances of a pre-election fiscal deal remain slim, markets appear to believe that a Democratic clean sweep of next month’s elections would result in a major post-election stimulus package. But with the Democrats unlikely to win a …
21st October 2020
If the recent wave of protests across Nigeria and the curfew in Lagos come to an end in the next day or two, the economic impact should be limited. But if these run on for longer, the recovery in the non-oil sector would be derailed in Q4, and …
With the US election result unlikely to have immediate ramifications for US GDP, the main issue for much of Asia is how it affects trade policy. A Joe Biden presidency would be less confrontational towards Asian economies outside China. By contrast, a …
The RBA’s assets will rise further over the coming months as banks draw down funding under the TFF. But so will the assets of other central banks. If the Bank wanted to catch up with the advanced economies’ most expansionary central banks, it would need …
The Bank of Canada’s balance sheet has been shrinking in recent weeks, as demand for its emergency repos loans continues to subside, and it will experience a bigger fall next spring, when the 12-month repo loans made at the height of the …
20th October 2020
The government is removing some of its support to employment. The national furlough ends on the 31 st October and the new Job Support Scheme is less generous and narrower. As a result, the pace of the fall in employment will soon speed up. At its peak in …
We think that the second wave of COVID-19 infections and new containment measures will cause the euro-zone economy to stagnate over the next six months or so. In quarter-on-quarter terms, GDP would still increase slightly in Q4, but it would mean zero …
While we wouldn’t rule out negative interest rates being used a bit further down the line, over the next 6-12 months we think 10-year gilt yields will be kept close to 0.15% by the Bank of England expanding quantitative easing (QE) by a further £250bn by …
The detailed breakdown of China’s Q3 GDP data published today shows that the recovery within the service sector remains highly uneven. Encouragingly though, all types of services activity showed a clear improvement, especially among the sectors hardest …
Commercial banks left the Loan Prime Rate (LPR) on hold today. With the PBOC appearing reluctant to keep monetary policy loose for longer than needed amid a broadening economic recovery, we think the next move in the LPR will be an increase early next …
While there has been some good news on virus numbers in India and Latin America, Europe and parts of the US are grappling with a big resurgence in infections. Restrictions have already been tightened in several European countries, and more measures are …
19th October 2020
The industrial sector could see a further increase in its share of investment in the coming quarters thanks to both its own resilience and concerns surrounding the other sectors. Those diverging prospects are likely to mean that the negative yield gap …
We are upgrading our already above-consensus forecast for the Canadian dollar, as we expect higher oil prices, stronger-than-expected GDP growth, and favourable interest rate differentials to drive a continued appreciation over the next two years. Those …
An abrupt U-turn on workers returning to their offices last month signalled that the virus will continue to dominate lives in the UK into next year. In fact, we think office working may never quite be the same. As more remote working could reduce space …
Whatever the outcome of the US election, we expect that the trends of US-China decoupling and deglobalisation will continue. The election result could be pivotal for some EMs: a Joe Biden victory could raise geopolitical tensions with Turkey and Russia. …
16th October 2020
In the current environment, bank lending to property will likely stay weak. Moreover, falling values are expected to lead to an estimated £30bn re-financing gap in the coming years, which will put pressure on investors to find other forms of finance or …
On the face of it, the rebound in retail sales in advanced economies suggests that the consumer sector is leading a V-shaped economic recovery. But other types of spending, including on consumer services, has been far weaker, and the import-intensity of …
Even though lockdown restrictions had eased, office take-up in Paris in Q3 was still well below pre-virus levels. And the recent imposition of tighter restrictions in Paris will likely curtail leasing activity in Q4. With similar strict measures likely in …
A “circuit-breaker” lockdown where most pubs and restaurants are closed across the country would throw the economic recovery into reverse and mean that, depending on the severity and length of the restrictions, it could be well into 2023 before GDP …
15th October 2020
Government action has meant corporate bankruptcies have remained low, which has prevented a sharp rise in tenancy defaults and has supported income security on leases. But, as this support is gradually withdrawn, rising tenancy defaults in a weak occupier …
A renewed rise in longer-dated Treasury yields in response to growing expectations of a large US post-election fiscal stimulus would test the Fed’s resolve to keep monetary conditions extremely loose. We suspect that it would want to keep those yields …
The renewed risk of domestic political unrest in Thailand following the declaration of a “severe” state of emergency could act as a further drag on the already beleaguered economy. In response to student-led protests calling for Prime Minister Prayuth …
With the virus spreading rapidly, governments are ramping up their containment measures. The new restrictions will be more targeted, regional and time-specific than in the first wave, but they are still likely to cause a new contraction in the services …
14th October 2020
The big downward revision to employment in the labour market statistics reveals that renters have seen a larger hit to employment than homeowners. This supports our view that house prices will be resilient next year, while private rents will probably …
The stronger employment recovery in Canada than the US seems to reflect several factors including wage subsidies, less immediate pressure on the finances of regional governments, and the faster re-opening of schools. But with new restrictions imposed this …
The upturn in coronavirus infections in the Midwest isn’t in itself a major concern, but a more widespread resurgence in cases over the winter would raise the risks of the economic recovery going into reverse. While Europe grapples with a second wave of …
Upgrades to 2020, but consensus more downbeat on 2021-22 Consensus forecasts for this year have been revised upwards, although the outlook for total returns remains negative. At the same time, the prospects for 2021-22 have been downgraded, but only …
Hard activity data from South Africa released this week point to continued weakness in the economic recovery in August despite the easing of containment measures. Activity data published by Stats SA today showed that retail sales rose by 4.0% m/m in …
The weakness of Egypt’s inflation reading for September is likely to prompt another rate cut at the central bank’s (CBE’s) next meeting. With inflation persistently undershooting the CBE’s target (which expires this quarter), policymakers are likely to …
The coronavirus crisis has already dealt a heavy blow to the Ukrainian economy and the risks to the outlook are growing: recent challenges to the independence of the central bank and anti-corruption institutions threaten to undermine the IMF deal agreed …
The COVID-19 crisis has led to a ballooning of current account surpluses across Emerging Asia that is putting upward pressure on currencies. The shift to bigger external surpluses could also land the region in hot water with the US Treasury as it prepares …
The Bank of Korea (BoK) left its main policy rate on hold at 0.50% today and, with the economic recovery holding up relatively well, further rate cuts seem unlikely. Instead the focus of the BoK is likely to shift to cushioning the impact of loose fiscal …
