The slump in underlying inflation in Tokyo in August was mostly driven by subsidies to domestic travel as part of the Go To travel campaign. But even when we strip out the impact of those subsidies, underlying inflation has now started to slow and we …
28th August 2020
Given interest rates are already very low, we doubt any additional stimulus introduced because of the change to the inflation target will provide a significant boost to the economy or house prices. Indeed, the past relationship between interest rates and …
27th August 2020
Chair Jerome Powell announced this morning that the Fed will be adopting what he described as a “flexible form of average inflation targeting”, which we expect will trigger additional policy stimulus in the form of stronger forward guidance and possibly …
The recovery in total consumer spending is almost certainly lagging well behind the surge in retail sales. And although the early signs of a recovery have been positive, a coming wave of unemployment will put a dampener on consumers’ willingness and …
We estimate that non-farm payrolls increased by a more modest one million in August and without the restarting of field operations for the 2020 Census, which probably added 250,000 jobs, employment growth would have slowed even more sharply. The 1,763,000 …
The annual growth rates of the main monetary aggregates remain unusually elevated, but the growth rate of bank loans has fallen back. (See Chart 1.) Furthermore, although those monetary aggregates are significantly higher than the level 12 months ago, …
Despite the news that the latest round of UK-EU Brexit negotiations ended in deadlock last Friday, sterling has remained remarkably stable. This suggests that while there may be some small upside for sterling if a slim trade deal is agreed by 31 st …
Broad money growth accelerated to a 12-year high in July, but we think that this will prove to be temporary and is not likely to push up inflation. Meanwhile, growth in bank lending to firms has returned to more normal levels, while consumer credit …
Both Korea and Japan are experiencing second waves, but a stronger shift in consumer behaviour in Korea means the outbreak there is likely to have a larger impact on growth. As such, we’ve revised down our GDP forecast for Korea but kept it the same for …
The Bank of Korea (BoK) left its policy rate on hold at 0.50% today but gave hints at the press conference that fresh rate cuts were on the table. We have pencilled in a cut in Q3 as a result and are sticking with our view that the BoK will expand …
While some of the early epicentres of the coronavirus outbreak in India now appear to be getting infections under control, cases are rising quickly in several states that avoided an initial surge. This means more restrictions covering wider areas will …
Part of the eviction ban is due to end in September, and court ordered evictions are likely to surge as the backlog works through the system. Even so, evictions will remain small compared to the rental stock, meaning the impact on private rents is likely …
26th August 2020
New Finance Minister Chrystia Freeland has already shown her colours by ramping up fiscal spending after just one day on the job, and her previous calls for a “new New Deal” to address inequality suggest she may soon push for even greater spending. The …
Governments across the Gulf have managed to get on top of coronavirus outbreaks but Morocco, Tunisia, Jordan, and Lebanon have seen the virus spread rapidly in recent weeks. These economies are the most vulnerable in the region to a fresh tightening of …
While Sweden’s economy got off relatively lightly in H1 thanks to the light-touch lockdown, Norway and Finland saw even smaller falls in activity at a lower human cost. Nonetheless, the success of the Nordics does not offer any obvious lessons for those …
We expect some sectors of the stock market that have underperformed in coronavirus to make up ground on those that have outperformed, assuming the virus is brought under control. A notable exception, however, is financials, which we expect to lag given …
With the so-called “easy” part of the economic recovery probably coming to an end, the next leg is likely to be slower, particularly if like overseas, the UK suffers a renewed surge in virus cases and more localised lockdowns. While the high frequency …
A recovery in demand at a time of constrained supply will put downward pressure on US natural gas stocks and provide a small lift to prices in 2021 . The price of US natural gas (Henry Hub) touched a multi-decade low of $1.48 per mBtu in June owing …
25th August 2020
Kenya’s current account deficit will probably widen in the coming quarters and could reach as much as 6.5% of GDP over this year as a whole. We expect the shilling to continue to depreciate against the dollar and Kenya’s heavy dependence on less stable …
The Fed is very close to introducing changes to its policy framework that would explicitly allow for an overshoot of the inflation target to compensate for the undershoot over the past decade. Those changes to the long-run goals and strategy statement, …
The recent lull in business insolvencies will almost certainly be followed by a wave of businesses going bust as government support is withdrawn. This will contribute to a surge in unemployment over the next year and is one reason why we expect the strong …
France’s virus-related slump in the first half of 2020 rivalled the big falls in GDP in Italy and Spain. But its recovery should be stronger because working from home is more common, the economy is less dependent on international tourism, and the …
24th August 2020
Given uncertainty around the level of adoption of remote-working, change in space allocated per worker and how large any reduction in supply might be, we provide a set of potential scenarios for the change in required office space and the effect on …
At first sight, the latest batch of flash PMIs suggests that recoveries in advanced economies are heading in different directions. However, this has a lot to do with individual economies being in different stages of fighting the virus and easing …
21st August 2020
Recent building permit issuance and the rise in home sales to a record high bode well for housing starts for the rest of 2020, but the outlook beyond then will depend largely on whether immigration rebounds. The July housing starts data showed new …
Emerging markets account for the majority of new global coronavirus cases each day (see Chart 1) and, while containment measures may be tightened sporadically, these are generally likely to be targeted and localised. The spread of the virus is, of course, …
The minutes of the Reserve Bank’s August policy meeting show that the MPC – of which three members are now due to step down – has turned notably more hawkish on the inflation outlook. But there are reasons to think that inflation pressure will ease and, …
Political uncertainty often seems to have weighed on the performance of US equities, both in absolute terms and relative to Treasuries, before a presidential election. But another lesson from history is that the macroeconomic backdrop frequently had the …
20th August 2020
The foreclosure process ground to a halt in the second quarter, as lenders were banned from foreclosing on federally-backed mortgages and the court system largely closed. While we expect most of those who applied for forbearance due to COVID-related …
Private housebuilding is constrained by the speed at which builders can sell homes at prevailing market prices, which planning changes will do little to change. As a result, the government’s proposed reforms may improve land supply and support SME …
The account of the ECB’s last monetary policy meeting suggests that there was a strong consensus in favour of the current policy settings. Absent a big surprise in the economic data or fresh financial market turmoil, the Bank is likely to leave policy …
Turkey’s central bank kept its key policy interest rates on hold today and, while the accompanying statement acknowledged growing upside risks to inflation, it looks like that the focus will remain on tightening monetary conditions via the use of the …
While the success of the UK’s job furlough scheme has prevented the unemployment rate from rising as far as it has in the US, an increase in UK unemployment has been delayed rather than avoided altogether. This is a key reason why we expect an impressive …
A combination of stronger demand and higher oil prices will support the spot price of Asian LNG over the next year and a half . At the start of the year, the LNG market was already showing signs of oversupply and the virus-related hit to demand made …
We suspect that the coronavirus-induced local-currency underperformance of MSCI’s Japan and Switzerland indices relative to its USA Index will unwind as the world slowly gets back to normal. To recap, after falling by less in the wake of the coronavirus …
We think that economic activity in Italy is still nearly 10% below its pre-crisis level. Even without a second wave, the economy will remain weak and the budget deficit wide for several years. Nevertheless, the near-term outlook is not as bad in Italy as …
The worst of the strains in Egypt’s balance of payments is probably now over and the current account deficit should narrow over the coming quarters, but we still think that the pound will gradually weaken against the dollar. The current account position …
The central bank of the Philippines (BSP) left its main policy rate on hold at 2.25% today, but with the pandemic weighing heavily on the economy, we doubt the Bank has finished easing. Today’s decision to hold follows a 50bp cut at the BSP’s last meeting …
This morning’s decision by the Norges Bank to leave its key interest rates on hold at zero was never really in doubt. We still think it more likely than not that the Bank will leave rates on hold throughout our forecast horizon. Today’s announcement was …
Negative interest rates would not necessarily weaken the exchange rate, but they would almost certainly reduce bank lending rates. While they could result in lower lending margins, New Zealand’s banks are well capitalised and are among the most profitable …
The Central Bank of Sri Lanka (CBSL) left both its deposit and lending rates on hold at 4.50% and 5.50% respectively at its meeting today, but given the poor outlook for the economy and mounting political pressure, we think the easing cycle has further to …
Commercial banks left the Loan Prime Rate (LPR) on hold today. Given signs that the focus of monetary policy has shifted to containing financial risks on the back of the relatively rapid economic recovery, we think the LPR will be unchanged for the …
The sudden imposition of quarantine on people arriving from France highlights the risks involved in foreign travel while the virus is still circulating. This uncertainty is likely to mean it takes a very long time for international travel to recover from …
19th August 2020
The latest data suggest that Brazil’s recovery so far has been quicker than we expected, which has prompted us to revise up our 2020 GDP growth forecast to -5.0% (previously -7.0%). However, tighter policy, labour market weakness and the continued spread …
Bank Indonesia’s (BI) decision to leave interest rates unchanged at 4.0% suggests that it is waiting to see if the recent stabilisation in the rupiah holds. Provided it does, we think further easing is likely over the coming months as the economic …
Virus numbers have risen sharply in the past month, but the second wave has different characteristics from the first. It is concentrated in younger people, so hospitals are not being put under such pressure. One consequence is that the restrictions being …
While we think the US dollar will weaken a bit further this year, suggestions that its role as the world’s primary reserve currency is in jeopardy are wide of the mark in our view. Although it has stabilised a bit over the past couple of weeks, the dollar …
While we think that nominal interest rates and bond yields in developed markets will remain around their current ultra-low levels for some time, we think that their real counterparts will fall further in the US relative to the euro-zone and Japan. In our …
18th August 2020
