The Argentine finance ministry’s decision to extend the maturities of some of its short-term local-law debt, and enter talks with external bondholders, is tantamount to default. The government and bondholders stand a good chance of agreeing to some …
29th August 2019
The policies of the next European Commission are likely to speed up the EU’s ongoing transition towards a greener energy future. However, its impact will probably not live up to expectations . President-elect of the European Commission, Ursula von der …
We doubt that stocks that reliably pay high dividends will fare better than their peers during the rest of this year, as we think that bond yields are unlikely to fall much further and might even bounce back a bit. Dividend aristocrats are companies that …
The unexpected release of economic reform proposals by South Africa’s treasury is probably an attempt to push the president to announce a more ambitious plan at October’s budget speech. The plan contains numerous suggestions that would boost growth in the …
Measures announced by the government yesterday to loosen restrictions on FDI are a welcome step and we think that further reforms aimed at attracting foreign investment are likely over the coming months. That bodes well for India’s external position and …
China’s share of global exports has increased over the past year, despite US tariffs. Renminbi depreciation and the transhipments of goods to the US via neighbouring countries can take much of the credit. China’s economy has held up well despite the …
Germany could have taken the UK’s departure from the EU in its stride a couple of years ago but it will be hit quite badly if a no-deal Brexit occurs in two months’ time. There is still enormous uncertainty about how and whether the UK will leave the EU, …
28th August 2019
The Prime Minister’s decision to suspend Parliament from sometime in the second week of September until 14 th October increases the downside risks to the British economy and the pound by decreasing the chances of a further delay to Brexit and increasing …
Plummeting bond yields in 2019 have dramatically improved property valuations, supporting the outlook for property prices. Indeed, we now think that euro-zone prime office yields can extend their falls over the next few years, taking the total shift in …
The Argentine central bank’s large intervention in the FX market in recent days hasn’t been enough to stop the peso from weakening further against the dollar, and we think that the gross FX reserve figure overstates the BCRA’s ability to prop up the peso. …
Gold imports set to remain in the doldrums Gold’s price rally saw Indian and Chinese imports continue to tumble in July. And, given that prices have risen further in August, gold imports could record multi-year lows in the second half of 2019 . Data …
As the global economy slows, we think that expectations for bank earnings will prove too optimistic and that relatively high bank equity valuations in the US, Canada, Australia, and the Nordics are likely to fall. Bank equities have struggled more than …
The Prime Minister’s decision to suspend Parliament from sometime in the second week of September until 14 th October increases the downside risks to the economy and the pound by decreasing the chances of a further delay to Brexit and increasing the …
Given the deep downturn in the tourism sector, this morning’s decision by the Central Bank of Iceland (CBI) to cut interest rates by a further 25bps came as no surprise to us. We think that policymakers will continue the easing cycle at the next meeting, …
Kenya’s drought will probably push inflation above the CBK’s target range in Q4. But bank will likely look through this spike, as it did in 2017. We think the next rate move will be a 50bp cut in Q4 2020. Inflation picked up again in July, rising from …
While the US-China trade war has escalated, we had already expected the two countries’ dispute to deepen. Meanwhile, although a thawing of US-Iran relations could mean a return to the market of Iranian exports, this seems a long way off. As such, we see …
27th August 2019
Our GDP Tracker suggests that Saudi Arabia’s economy slowed further in Q2, to just 1.0% y/y, as the drag from the oil sector intensified. We think that GDP growth will be even softer in the coming months and we’re comfortable with our below-consensus …
The trade deal that the US and Japan have negotiated won’t provide major benefits for Japan’s economy. And while it seems to have reduced the risk that the US imposes any tariffs on Japanese car imports, the deal faces an uncertain future in the US …
With President Trump adding yet more US tariffs to the pipeline, the impact on China’s economy is starting to add up. With the drag on GDP growth set to rise to nearly one percentage point before long, it is significant enough to warrant looser monetary …
26th August 2019
Growth in the money supply has picked-up in Australia but we don’t think the money supply has much of a relationship with economic activity. Even so, banks have started to ease lending standards which should support credit growth and support economic …
The tariffs announced today by China’s government are a departure from previous rounds of retaliation: they focus almost entirely on further raising tariffs on products that have already been targeted. That most likely reflects concern that applying …
23rd August 2019
We think that a recovery in refined lead production, ailing demand, and elevated trade tensions should cause the price of lead to drop by almost 15% by end-2019 . To recap, LME lead prices have risen robustly this summer, despite a broad-based decline in …
Investors appear to be coming round to our view that an Argentine sovereign debt default is now more likely than not. This Update provides clients with a primer on the composition of federal government debt, and explains what this might mean for any debt …
So far, the current global economic downturn has been driven by a marked decline in manufacturing activity, with obvious negative implications for commodities demand and prices. Less intuitively, we think that if the malaise spreads to the services …
Yield curves have inverted in most advanced economies over the past couple of weeks, including in the US, Germany and the UK, sparking fears of an imminent global recession. While most advanced economies will just avoid falling in a recession in our view, …
A no deal Brexit later this year could mean that the UK government decides to substantially reduce its strategic reserves of petroleum products. But even after a reduction, the UK’s reserves should remain ample. What’s more, any sell-off in product stocks …
The Egyptian central bank cut its overnight deposit rate by a larger-than-expected 150bp last night (to 14.25%) and with inflation likely to fall further in the coming months, much more easing lies in store. We have revised down our year-end forecast to …
The Central Bank of Sri Lanka (CBSL) cut rates today, but given our view that the rupee will come under pressure again this year, we think this will probably mark the last cut in 2019. Today’s decision by the CBSL to cut both its deposit and lending rate …
PMI surveys for August imply that growth in advanced economies has slowed further in the third quarter. But one crumb of comfort is that the weakness in manufacturing has not yet weighed much on services. Markit’s flash composite PMIs, published today, …
22nd August 2019
Rental growth typically falls back during economic slowdowns, but we think rents will hold up relatively well over the next couple of years. With the rental vacancy rate close to record lows the market is starting from a position of a strength, and a lack …
Despite President Donald Trump’s complaints that the strong dollar is holding back the economy, the dollar’s rate of appreciation matters more than its level and it has risen by only 3% in trade-weighted terms over the past year. Even the further modest …
If manufacturers and wholesalers draw down their inventories to more normal levels over the next 18 months, it will knock over 1.0%-point from annual GDP growth by the early stages of 2020. While manufacturing sales volumes fell by just 0.2% m/m in June, …
The account of the Governing Council’s July meeting shows that there was broad support for further policy easing in September and perhaps for a change to the inflation target fairly soon. It leaves us comfortable with our forecast for a 10bp deposit rate …
Despite the recent weakness of the rupiah, Bank Indonesia (BI) today cut its benchmark interest rate for the second consecutive month to 5.50% and hinted that further easing is on the horizon. But the uncertain outlook for the currency means any further …
Accelerating wage growth has lowered the house price to earnings ratio, even as house prices themselves have continued to climb. Indeed, London has already seen an 11% drop in earnings-adjusted prices. Looking ahead, we expect wage growth to drive a …
The minutes of the Reserve Bank’s August policy meeting suggest that the MPC’s larger-than-expected rate cut was intended in part to send a dovish signal rather than simply being a case of “front-loading” loosening. This supports our view that further …
Loan losses have remained low throughout the housing downturn but we suspect that they will pick up soon, driven by higher write-offs on corporate loans. However, loan losses tend to lag changes in lending standards. With the Royal Commission now behind …
While the Swedish krona and the Norwegian krone are now near the record lows they reached against the euro in 2008-09, we think that monetary policy and rising risk aversion will push them down further. The Swedish and Norwegian currencies have …
21st August 2019
The recent political turmoil in Peru has stoked fears about governability issues, and congressional gridlock is likely to continue in the near term. But in contrast to many other analysts, we doubt that this will prevent GDP growth from accelerating in …
The current global economic slowdown may descend into something more serious if manufacturing drags services down with it. Fortunately, there are reasons to think that the spillovers from the industrial slump will continue to be limited, at least during …
The weakness in the retail surveys has led some to question whether the consumer sector will succumb to the malaise that has taken hold in the manufacturing sector. But we are sceptical the consumer sector will falter. In all our Brexit scenarios, we …
The recovery in Hungarian private sector credit has been an important driver of GDP growth in recent years, but we think that the credit boom doesn’t have much further to run . One of the most impressive aspects of Hungary’s recent expansion – GDP grew by …
After almost a decade of ultra-low interest rates and rising real estate valuations, concerns have been voiced about the outlook for property. In our view, these worries are not completely unfounded and returns are likely to moderate, but crash fears are, …
For all the bad news on the global economy recently, it looks as if GDP growth across Emerging Asia held broadly stable last quarter. Although growth is likely to remain fairly weak over the coming year, with fiscal and monetary policy being loosened, we …
After a relatively calm first half of 2019, EM capital outflows probably picked up significantly in August as US-China trade tensions escalated. And outflows are likely to remain larger over the second half of the year, putting EM currencies under …
The dramatic narrowing of the spread between the prices of Brent and WTI oil in the last month, reflects a structural change in the market as logistical bottlenecks in the US are being resolved. As such, we expect the Brent-WTI spread to trade in a much …
20th August 2019
Hopes that Italy’s political crisis will pave the way for a more market-friendly government are likely to be disappointed. The most plausible outcome is a new general election, either later this year or in early 2020, which will usher in a …
The fall in oil prices this month will create both winners and losers in Africa. But the winners’ gains will be small and spread across dozens of countries, whereas pain will be concentrated in a few economies. Lower energy prices will depress inflation, …
In coming years, we think that increases in retail yields will cause all-property yields to rise, irrespective of our expectations for interest rates and the economy. However, further out, if all-property yields continue to be less responsive to changes …
