We estimate that the direct and indirect effects of the slump in vehicle production account for around half of the downturn in German industrial production since the beginning of last year. A sustained recovery will not take place until the sector is back …
1st October 2019
The dissolution of congress by President Martín Vizcarra and his heated stand-off with the opposition will likely cause a sell-off in markets and further political gridlock. But as things stand, we doubt that this will prevent Peruvian GDP growth from …
The global manufacturing PMI picked up again in September, but this was largely due to a jump in China’s index that we don’t think will be sustained. While it is still too early to call time on the downturn in global industry, it is at least of some …
The RBA cut interest rates to 0.75% as widely anticipated and we think it will lower rates to 0.5% by the end of the year. Rates approaching the zero lower bound will inevitably invite speculation about quantitative easing but the RBA’s forceful response …
India’s current account deficit narrowed a touch in the four quarters to Q2 and looks unlikely to balloon any time soon as imports of key commodities remain in check. Meanwhile, FDI inflows edged up in Q2 and are likely to rise over the coming quarters as …
Suggestions that the recent rise in interbank rates was caused by the ECB’s new tiered interest rate system are wide of the mark. Instead, the increase reflects investors’ re-evaluation of the outlook for policy rates. They now anticipate a single 10 …
30th September 2019
Although we forecast a correction in the US stock market later this year, we think it will outperform Treasuries by a large margin in 2020-21. This view rests on an assumption that inflation will remain quite low, but positive. Other inflation outcomes …
The latest business surveys from Switzerland indicate that the woes in Germany are posing an increasing drag on activity. We have therefore revised our forecasts for Swiss GDP growth down to just 0.5% this year and next, which puts us well below the …
China’s official and unofficial PMIs rose in September, but we think this is unlikely to mark an economic turnaround not least because global demand looks set to weaken further. What’s more, signs of slower construction activity have particularly negative …
Data released over the weekend suggest that Vietnam grew strongly in the third quarter of the year, and we think it will remain one of the fastest growing economies in the region. The possibility that the US will introduce tariffs on its imports from …
Tomorrow’s tax hike is likely to do less immediate damage to economic growth in Japan than previous increases. But it is still likely to trigger a sizeable fall in GDP in Q4. A rapid rebound next year is unlikely. The sales tax was introduced at 3% in …
The giveaways to households and firms announced by French finance minister Bruno Le Maire yesterday do not alter the fact that there will be a tightening in France’s fiscal stance in 2020. Indeed, the French government has not got the will (nor the scope …
27th September 2019
Investors’ continued optimism about corporate earnings in the US is hard to square with our view that economic growth there and in the rest of the world will remain weak. That is the key reason why we expect US equities to perform poorly during the rest …
We have revised up our forecasts for India’s Sensex equity index following the corporate tax reform there. And more generally, we expect it to be one of the best performers among EM stock markets over the next few years, even if it falls back a little …
A further downgrade to the euro-zone growth outlook means that additional monetary loosening is on the cards. While this doesn’t substantially shift our expectations for property yields over the next few years, it will keep the supply of capital strong …
Mexican policymakers cut their policy rate from 8.00% to 7.75% yesterday, and we think that they will continue to loosen policy over the coming quarters. We now expect a 25bp cut in both of the remaining meetings this year, taking the rate to 7.25% rather …
Assessing investors’ expectations about the future path of policy interest rates in Norway is not as straightforward as it is in other countries, not least neighbouring Sweden. In this Update we answer ten key questions to provide a primer on how to gauge …
A surge in demand for refinancing has stretched lenders’ capacity, lengthening the time it takes to close a mortgage. That has disrupted the usual relationship between pending and existing home sales. While that disruption should not last long, it means …
26th September 2019
The Central Bank of Egypt shrugged off the market volatility following recent protests across the country and lowered interest rates by another 100bp, to 13.25%, at today’s meeting. So long as the protests don’t escalate, weak inflation pressures mean …
Ethiopia’s investment-focused economic model has attracted widespread praise, but has also created dangerous external vulnerabilities. Were domestic instability or EM-wide risk aversion to cause funding to dry up, the country would quickly face a painful …
Rising tensions in the Middle East present a significant upside risk to our oil price and inflation forecasts, and could force a handful of EM central banks to abandon easing cycles or even hike interest rates. But a majority of central banks would …
The Bank of Canada’s latest research implies that home equity extraction has had only modest effects on consumer spending and GDP. Once we consider the total wealth effects, however, the significance of previous gains in house prices is much larger. The …
Today’s cut to the policy rate by the central bank in the Philippines (BSP) from 4.25% to 4.00% is unlikely to be the last in the easing cycle. With growth likely to disappoint and price pressures set to remain subdued, we expect more cuts in the coming …
Most of the recent outperformance of Switzerland’s manufacturing sector relative to Germany’s reflects strong growth in pharmaceuticals. But this has masked struggles in more Germany-facing sectors. The Swiss manufacturing sector has outperformed its …
Given that the SNB’s policy rate is already at -0.75%, fears of hitting the so-called ‘reversal rate’ are likely to make it unwilling to cut rates much further. With the ECB once again in easing mode, we put the odds of the SNB having to reinstate a …
25th September 2019
Following a bold start to the year, office take-up in Barcelona looks set to record its strongest year since 2005 which, coupled with falling vacancy rates, should boost rental growth. Indeed, Barcelona is set to outperform its peers for the next few …
EM capital outflows persisted last month and, with the US-China trade war unlikely to abate, we think that they will continue in the coming quarters. However, the scale of outflows should remain modest, which in turn should limit the macroeconomic …
The Bank of Thailand (BoT) left interest rates unchanged at 1.50% today, but with economic growth set to remain weak and concerns about the strength of the baht mounting, we think the central bank will loosen policy again before the end of the year. …
Nigeria’s latest budget plan has strengthened our view that the fiscal position is unsustainable and that the country will face some kind of debt crisis within five years. Nigeria’s new fiscal framework makes for sobering reading . The document not only …
The combination of a broad-based easing cycle in emerging markets and strong demand for risky assets has pushed local currency emerging market (EM) sovereign yields down sharply in 2019. However, we expect that rally to go into reverse by the end of the …
The Reserve Bank of New Zealand sounded more comfortable with its position when it left rates on hold today but we still think the Bank will cut rates to 0.75% by early next year. The decision to leave rates unchanged at 1.0% following the dramatic 50 …
Flash PMIs for September suggest that advanced economies ended Q3 on a weak footing. The surveys also point to weaker exports, jobs growth and core inflation. The fall in the euro-zone composite PMI, to a 75-month low, indicates that the economy almost …
24th September 2019
We are cutting our forecast for euro-zone GDP growth in 2020 and expect inflation to stay close to 1%. Moreover, we think the ECB will revise its inflation target in the coming months, then cut its deposit rate to -0.8% and further step up QE next year, …
The ruling by the Supreme Court in the UK that the Prime Minister’s decision to prorogue Parliament was “unlawful, void and of no effect” and that the suspension should be “quashed” as soon as possible increases the chances of a delay to Brexit and …
The Bank of Japan’s announcement that it will “re-examine economic and price developments” at its meeting at the end of October has been widely interpreted as opening the door to a shift on policy. In this Update , we highlight the indicators that will …
This Update was originally sent to clients as a Rapid Response immediately after the ruling by the Supreme Court on the legality of the Prime Minister’s decision to suspend Parliament until 14 th October. The ruling by the Supreme Court that the Prime …
With attention focused on the impact of tariffs on goods trade, the recent decline in services exports has gone largely unnoticed. But that has already knocked a few tenths off GDP growth and, with the weakness concentrated in sectors in which the US has …
23rd September 2019
President Nicolas Maduro’s attempts to control inflation have had some effect, but without more severe measures we think that price pressures will probably remain extremely high over the coming months. After peaking at 350,000% y/y in January, Venezuelan …
We think that this year’s joint surge in the prices of US equities and government bonds is on its last legs, given the outlook for monetary policy and corporate earnings. Share prices get a boost when there is a reduction in the rate at which investors …
Lower production in Saudi Arabia and the lower-than-expected US output growth have led us to revise down our global oil supply growth estimates. We now expect the market surplus to be smaller than we had previously expected in 2020, which will support …
Protests in Egypt over the past few days have ignited concerns that the country is on the cusp of another period of political upheaval. Past experience suggests that this would be disruptive for the economy and government efforts to quell unrest, such as …
The UK has significant financial ties to Hong Kong, and the recession and correction in house prices we are forecasting there will put the territory’s financial sector under pressure. However, only a couple of UK banks are vulnerable. And as they appear …
The use of retail CVAs may have peaked. However, given that CVAs lower the overall market rent and that those retailers who have been subject to a CVA are still at risk of insolvency, we think that retail rental values have further to fall. Since early …
The deterioration in the external environment and willingness of the Hungarian MPC to look through above-target inflation means that monetary conditions are unlikely to change over the next twelve months. That said, we think that the central bank will …
20th September 2019
Given our view that the US economy will avoid a recession, we doubt that the Fed will deliver as many rate cuts as investors anticipate. As such, we think that Treasury yields will rise substantially next year. To re-cap, the Fed voted this week to cut …
We estimate that 190,000 tonnes of refined nickel have flowed into unreported stocks since 2017. In other words, nickel stocks are much higher than official numbers indicate. This supports our view that nickel prices will decline next year even if …
Fiscal loosening measures announced by Finance Minister Nirmala Sitharaman today are likely to provide a small boost to economic growth over the coming quarters, but significantly increase the chances of the ministry missing its budget deficit target this …
Increased competition among lenders has caused mortgage interest rates to fall in recent months. But funding costs are set to remain pretty stable. That, combined with already tight interest margins and increased regulation, leaves limited scope for rates …
The changes to the SNB’s tiering system, announced yesterday, are even more generous to domestic banks than they initially appear, and will help to ‘sugar the pill’ ahead of a probable rate cut. The main point of interest at yesterday’s SNB meeting was a …
The decision to reform the RPI measure of inflation at some point between 2025 and 2030 could reduce RPI inflation by a little under 1ppt a year. That could give the Government a windfall of about £3.2bn per annum at the expense of bondholders and …
