PBOC continues to align its policy rates This Update was originally sent to clients as a Rapid Response immediately after the Targeted Medium-term Lending Facility was cut on 24 th April 2020. The People’s Bank (PBOC) has cut rates on yet another one of …
24th April 2020
The unemployment rate will surge to more than 15% in April but, unlike in a normal economic cycle, the high proportion of people on a temporary layoff leaves us hopeful that rate will come down relatively quickly, falling back below 7% by year-end. The …
23rd April 2020
As expected, after a dreadful month in March, the Flash PMIs for advanced economies got a whole lot uglier in April. While we suspect that they are not picking up the full scale of the declines in activity, the PMIs should become more useful when it comes …
The uneven economic impact of the coronavirus disruption suggests that property values in Southern European markets will be hit hardest and may take longer to recover than elsewhere in the euro-zone. The data for the first quarter has started trickling …
Most countries in Emerging Asia are net importers of oil, so would usually stand to gain from a big drop in prices. But that benefit won’t materialise until consumer spending recovers. For Malaysia, which is the region’s only major net oil exporter, the …
We suspect that banks’ share prices will rebound a bit from here, after falling a long way. Nonetheless, we don’t think that banks will outperform other sectors significantly, or for long, even if the global economy starts to recover and equity markets …
The government is encouraging manufacturers to return production of components from their overseas subsidiaries to Japan. Given the large scale of production that is now located abroad, a major reshoring of the industry isn’t realistic. And even if firms …
Saudi Arabia and the other Gulf countries should be able to weather the collapse in oil prices without abandoning dollar pegs, and Russia will still run looser fiscal policy this year than last. But the rout will cause major strains elsewhere. A debt …
22nd April 2020
The plunge in global oil prices has raised the risk of much steeper contractions in output in African oil producers, sharper currency falls, sovereign debt restructurings and problems at local banks. Among the major economies in the region that we cover, …
The plunge in oil prices won’t push Russia’s economy into a financial crisis, as it did in 2008/09 and 2015. But the government is likely to run its largest budget deficit since the late 1990s, which will limit the size of the fiscal package to support …
Pressure is mounting on Saudi Arabia’s dollar peg and, while there is some opaqueness over the full size of the Kingdom’s FX reserves, we estimate that the authorities could prop up the riyal at current ultra-low oil prices for more than five years. This …
The Turkish central bank responded to signs of a clear downturn in the economy by cutting interest rates by a further 100bp today but, with downward pressure on the lira continuing to mount, we think that the scope for further monetary easing is limited. …
The plunge in oil prices is yet another drag on Mexico’s freefalling economy, and may hasten a move by Pemex to restructure its external debts. The government’s lacklustre response to the economic crisis is forcing Banxico to do the heavy lifting to …
The ECB’s record pace of asset purchases is proving insufficient to bring bond spreads down. We think that it will need to step up the pace of purchases further, as well as expand the overall size of the Pandemic Emergency Purchase Programme well beyond …
While gold has rallied over the past month, we don’t think that it will continue to outperform most other asset classes in the way that it did in the aftermath of the Global Financial Crisis (GFC). On the contrary, we think that the GSCI Precious Metals, …
Proposals for a major, joint fiscal initiative are under discussion again ahead of tomorrow’s EU leaders’ meeting. But the gulf between those in favour and against looks too large to bridge. As a result, the ECB will have no choice but to expand its …
Due to the spread of COVID-19, it is increasingly likely that investment activity will slump to a record low level in the second quarter. Even though we expect a pickup in the second half of the year, annual investment totals are still set to be around …
Plans to ease containment measures have raised fears of a second wave of coronavirus to come. In some ways, the world economy would be better prepared to deal with it. But the development of testing and tracking will be crucial in determining the extent …
Taiwan’s success at containing the coronavirus outbreak at home will not prevent the economy from falling into a huge recession this year. We think the economy will shrink by 5% this year, which would be by far the biggest contraction on record. Taiwan …
The 10% of GDP emergency fiscal response announced by South Africa’s president last night will help to alleviate some of the strains in the economy caused by the lockdown. But with this coming one month after lockdown started, a lot of damage will already …
The impracticality of social distancing for many will make it hard for countries in South Asia to contain the coronavirus. Failure to contain the disease would have dreadful humanitarian consequences and would also lead to much slower economic recoveries …
The RBNZ’s decision to lift LVR restrictions is unlikely to provide much support to house prices in New Zealand. We think that the sharp decline in home sales and confidence together with the likely drop in migration will result in prices falling by 12%. …
President Trump’s tweet announcing a temporary ban on immigration is most likely just a short-term tactic to fire up his base. But it is hard not to see this as the beginning of an even more nativist post-pandemic policy agenda that the Trump …
21st April 2020
Whether negative or not, oil prices are now far below operating breakeven costs for many oil sands projects. That means firms are slashing production, and we doubt this lost output will be quick to return. Yesterday the price of WTI for delivery in May …
The spot price of WTI turned negative yesterday in large part owing to the nature of trading in the futures market. That said, the price slump has some fundamental underpinning as demand is very weak. We expect that storage constraints will keep the price …
A rising LIBOR OIS spread points to nervousness on interbank funding markets. But for the mortgage market, any future credit crunch is more likely to come from lenders’ concerns about the economy, house prices and risk appetite, than a dislocation in …
While emerging markets suffered large net portfolio investment outflows in March, the very latest data suggest that the pace of outflows eased in the first half of April. Meanwhile, it appears that other forms of capital flows – notably FDI and banking …
The collapse in oil prices has led to renewed pressure on dollar pegs in the Gulf and, while there could be some positive effects on balance sheets from devaluations, the costs would be politically unpalatable. The upshot is that we think that …
The government’s reluctance to provide significant financial support for firms and households during lockdown means that non-performing loans are likely to surge. One legacy of the coronavirus in India is therefore likely to be an impaired banking sector …
Vale, the world’s second largest iron ore producer, has cut its iron ore output guidance for 2020 by nearly 30m tonnes. Although significant, we don’t think it will be enough to push the market into a deficit. Therefore, we are sticking with our forecast …
20th April 2020
The scale of the Fed’s purchases of Treasury securities in the first few weeks of the pandemic, in addition to the sheer size of the broader expansion in its balance sheet, arguably suggests that the Fed is not just monetising the deficit, but has …
Output should start rising again in most countries in Asia in the third quarter of the year as lockdown measures are eased. But economic recoveries will soon run into constraints resulting from subdued demand and impaired balance sheets. A full recovery …
Many countries have now announced wage-subsidy programmes to prevent widespread layoffs. Household incomes will still be severely squeezed by pay cuts. Nonetheless, limiting the rise in unemployment will help countries to get up and running again once the …
The detailed breakdown of China’s Q1 GDP data that was published over the weekend shouldn’t be taken completely at face value. But it still provides a useful framework for gauging the relative performance of different sectors amid the COVID-19 disruption. …
Commercial banks lowered the Loan Prime Rate (LPR) today in response to last week’s policy rate cut. With economic conditions still weak, we expect further rate declines in the coming months. The one-year rate fell from 4.05% to 3.85% (both the Bloomberg …
The gold price has benefitted lately from demand for “safe” assets and an apparent easing of deflationary fears. While we also doubt that an extended period of de flation is on the cards, runaway in flation seems just as unlikely. And unless news on the …
17th April 2020
The S&P 500’s outperformance of many benchmark indices outside the US since the outbreak of coronavirus may not be surprising, given that it was also a salient feature of much of the previous decade. While we wouldn’t be surprised if the outperformance …
The early evidence suggests that household consumption in OECD economies may not have collapsed by as much as many fear in March. But as the boost from food stockpiling fades, overall consumer spending will plummet in Q2. Using our new (downloadable) …
The latest monthly figures from MSCI confirm initial fears about the impact of COVID-19 on property. And this is only the start, figures for the coming months are likely to be worse still as the lockdown continues. As a result, we have revised down our …
The largest fall in new home buyer traffic on record in April supports our below-consensus call for a 50% q/q drop in new home sales in the second quarter. But the share of households seeing now as a good time to buy a home saw only a modest decline in …
The agreement by the G20 to allow the world’s poorest nations to suspend bilateral debt servicing will help to ease short-term balance of payments strains in much of Africa, most notably Angola, but many countries will still need comprehensive debt …
The Argentine government’s aggressive proposal to restructure its international bonds entails over $40bn in debt relief, which would go some way to restoring public debt sustainability. However, there is a significant risk that negotiations between …
The collapse in oil prices in recent months has incentivised governments to increase their strategic petroleum reserves (SPRs). However, we don’t think that it will provide a boost to prices . SPRs are used to mitigate against oil supply disruption. …
We continue to think that most EM currencies will end the year higher than their current levels, even if they face further turbulence. But we don’t expect them to recover as strongly as they did after the GFC. As we have discussed previously , emerging …
The RBI has taken further steps to help banks and borrowers weather the collapse in economic activity from the coronavirus and containment measures in another emergency announcement today. The central bank also left the door open for further loosening, …
GDP and employment are set to fall by more than we previously expected in the first half of the year. Even allowing for a stronger rebound in the second half, we now forecast an 8% drop in GDP for 2020. March’s Labour Force Survey (LFS) and the nowcast …
16th April 2020
The IMF published the first chapter of its Global Financial Stability Report on Tuesday, in which it argued that the COVID-19 crisis poses “a very serious threat to the stability of the global financial system”. In this Update , we outline five …
After a decade of relatively cautious real estate lending and steady, rather than stunning, economic growth, office development has remained fairly subdued. What’s more, for both practical and economic reasons, we see completions dropping back in the next …
Our oil price forecasts are consistent with a 30% drop in Pemex’s revenues this year, which suggests the firm will need additional state support to service its large debts. However, with the coronavirus crisis intensifying, we’re not convinced that …
