The Bank of Japan projected a dovish tone today, promising further easing if needed. But unlike other major central banks the BoJ still seems a long way from following that up with action. We think it will refrain from lowering interest rates for the …
30th July 2019
The decline in Swedish GDP in Q2 will make it harder for the Riksbank to sit on the fence. With the economy unlikely to find much support in H2, the rising prospect of a recession lends further support to our forecast that the krona will fall sharply by …
The ending of the Central Bank Gold Agreement signals that worries about central bank gold sales are firmly behind us. In fact, central bank buying is now a significant prop rather than a headwind to the gold market. Indeed, with significant European …
With valuations looking stretched and the rental value outlook weak, regardless of how the pound moves in response to Brexit, we do not expect a rebound in overseas demand for property. Our three Brexit scenarios, as outlined in the latest UK Economics …
The grounding of the Boeing 737 Max aircraft delivered a hit to business equipment investment and net exports in the second quarter, reducing annualised GDP growth by 0.25% points. A similar hit to third quarter GDP is likely if production is cut further …
29th July 2019
The Bank of Canada’s forecasts for residential investment do not seem to account for the shift away from single-family to multi-family construction. That shift means it will take longer for construction to respond to the Bank’s previous interest rate …
Spending on cars has fallen sharply since the EU referendum, and unless a Brexit deal is agreed we suspect that it will remain a drag on consumer spending growth for a few years yet. Since the EU referendum in June 2016, real spending on cars has declined …
We have upgraded our forecasts for Portugal’s economy and now expect growth to be above trend in 2019 and 2020. Along with a halving in the size of the Lisbon office development pipeline in the next few years, this has led us to upgrade our rental growth …
A steady decline in home sales last year pushed the homeownership rate to a 1½-year low in the second quarter, and we doubt it will recover over the next couple of years. A slowing economy will prevent the recent drop in mortgage rates from boosting …
26th July 2019
The relatively dovish statement accompanying the Russian central bank’s decision to cut the policy rate today supports our view that the easing cycle has a lot further to go. We expect an additional 75bp of cuts over the next 9-12 months, whereas the …
The Swiss franc has been the best performing G10 currency over the past three months, despite falling back a bit after the ECB meeting on Thursday. We think that monetary policy as well as safe-haven flows will continue to support it against the euro …
A raft of survey data suggests that last month’s fall in Hungarian core inflation is unlikely to mark the start of a downward trend – as the central bank anticipates. We expect that underlying price pressures will build over the coming quarters, prompting …
A number of major central banks in Latin America are on the cusp of joining the global easing cycle but, in contrast to the prevailing view, we don’t think that Colombia will be one of them. We expect a weaker Colombian peso to push inflation up in the …
25th July 2019
Growth in China is slowing, but fears of a big drag on Africa are overdone. While the Asian giant’s demand for some commodities will soften, it will remain a key trade and investment partner. Indeed, in a slower-growing but more consumer-focused China may …
The apparent confirmation this afternoon that the ECB is inching towards loosening policy lends further support to our view that more rate cuts are on the cards in Denmark and Switzerland too. As we had expected, the ECB left its policy settings unchanged …
The market reaction to today’s ECB press conference suggests that President Draghi was not as dovish as some investors had hoped for. But the big picture is that it seems clear that policy loosening is coming. We expect the Bank to cut its deposit rate in …
The latest oil production forecasts from the National Energy Board suggest that there are downside risks to our below-consensus forecast that GDP growth declined to 1.5% annualised in the third quarter. The blue line in Chart 1 shows the National Energy …
Transactions fell sharply in June, but leading indicators suggest that the decline probably won’t be sustained. Indeed, assuming a no deal Brexit is avoided, we think housing transactions will fall by only 1% this year, before seeing a modest rise out to …
Commercial banks in New Zealand have kicked up a fuss over a proposal by the Reserve Bank to increase the level of capital the banks are required to hold. By contrast, we believe the new rules won’t result in a major increase in bank lending rates or a …
The Turkish central bank’s new governor, Murat Uysal, delivered a sharp 425bp interest rate cut at today’s MPC meeting and pressure from President Erdogan means that further aggressive easing lies in store over the coming months. But this is likely to …
We think that the price of palm oil (PO) will rise a touch this year and pick up strongly in 2020 primarily on the back of stronger demand growth, which will shift the market into a deficit . By way of background, the price of PO has tumbled since the …
Credit is growing at its strongest rate since the early 1990s. Given that investment growth has started to slow, the spike in private debt seems odd at first glance but much of it appears to have been driven by firms borrowing to seek higher rates of …
Advanced economy PMI surveys for July revealed that the relatively resilient services sector struggled to support growth, as the industrial downturn deepened. And the latest results of the Global Business Outlook surveys support our view that the slowdown …
24th July 2019
Judging by their recent performance, more bad news is priced into German than US equities. As a result, if we are right and risky assets around the world come under pressure as global growth slows further, we suspect that the German stock market will fall …
If it is introduced (which is far from certain) a tiered deposit rate would reduce the cost of negative interest rates for banks, but it would do so by only a trivial amount. Its main purpose would be to help to build support for, or buy off opposition …
Any spending spree by the new administration will probably be accompanied by a rise in borrowing, which could breach the current fiscal rule, especially if there is a no deal Brexit. However, fiscal rules are made to be broken, so we don’t think that this …
The latest rally in the Baltic Dry Index (BDI) has more to do with developments in the iron ore market than trends in world trade. As such, we think that the index will fall back as the iron ore trade normalises and the reality of slower global growth and …
The recent drop in corporate profits appears to have been driven by weak global demand rather than by rising wages. Accordingly, profits are likely to fall further over coming months even if we’re right in expecting the unemployment rate to pick up. The …
Australia’s corporate tax rate remains one of the highest in the world. However, the boost to GDP growth from lowering it towards the levels seen elsewhere would probably be quite small. The government has started to reduce the corporate tax rate from 30% …
Manufacturing surveys across Central Europe have overstated the weakness of industry recently, but the strength of production growth looks unsustainable. As prolonged weakness in the euro-zone takes an increasing toll on activity in the region, a slowdown …
Measures announced during this month’s union budget to ease restrictions on foreign direct investment into India should help to assuage concerns that policymakers have taken a more insular view on investment policy. Our view remains that the Modi …
The IMF has revised down its global growth forecasts, but they are still much stronger than our own. Its forecasts for advanced economies look particularly optimistic and we think that the changing monetary policy stance will take longer to bear fruit …
23rd July 2019
Nigerian policymakers held their key rate at 13.50% today, and indicated that they will rely on unconventional policy tools to boost lending over the coming quarters. These are, however, unlikely to work, and we think that this will prompt another 50bp …
The budget deal agreed by the Trump administration and Congress removes the risk of a damaging debt ceiling crisis in September and prevents a contraction in discretionary spending from October onwards. But our forecasts already assumed that the old …
While recent market attention has been on the ECB and Fed, the rise in the Swiss franc has ratcheted up the pressure on the SNB. As a result, investors have come around to our view that the Bank will push the boundaries of monetary easing by cutting rates …
The rise of speculative investment in base metals has resulted in high levels of overall price correlation. Beyond this, copper seems to provide a fairly reliable gauge of the general direction of base metals prices. But despite following similar trends, …
Despite his hard-line stance on the campaign trail, there is no way of knowing how Boris Johnson will handle Brexit once he becomes Prime Minister tomorrow. But it’s going to be turbulent and the chances of a no deal Brexit (and a general election and/or …
Since last July, the development pipeline in Brussels has grown and prospects for economic growth and thus, occupier demand have nudged lower. While the low availability of Grade A stock will support prime office rental values, Brussels has lost its …
22nd July 2019
The surge in the participation rate that has boosted employment by nearly a tenth since 2012 and thereby underpinned stronger economic growth is running out of steam. This will have a big impact, shaving close to a percentage point off Japan’s sustainable …
It is becoming harder for the Riksbank to brush aside mounting signs of weakness in domestic demand. We expect it to turn more dovish, and the krona to weaken, over the second half of the year. The Riksbank’s reasonably upbeat assessment about the outlook …
The federal government has urged state governments to step up infrastructure spending. But given the deterioration in their finances, we suspect that states are more likely to reduce capital spending. Urban Infrastructure Minister Alan Tudge indicated …
The price of palladium has surged amid higher demand for the metal from the Chinese auto sector, due to the ‘Blue Sky Protection Plan’, and investor buying. But our in-house demand proxy suggests the rally isn’t justified by underlying demand. As a …
19th July 2019
Despite the run of stronger activity data in recent weeks, the deterioration in the survey evidence, lingering uncertainty over trade policy and the prospect of a prolonged period of below-target inflation all suggest there is still a decent case for the …
18th July 2019
With bond yields falling, euro-zone property yield spreads have widened and remain high by historical standards. Admittedly, not all markets enjoy low bond yields, but even in Italy, where spreads have narrowed the most, we do not see any immediate upward …
The Bank of Canada’s economic forecasts suggest it is closer to making a dovish tilt than is widely thought. The key relationship in the Bank of Canada’s forecasting models is the link between inflation and the output gap. Absent any other factors, such …
Policymakers in South Africa will probably follow today’s 25bp cut with another 25bp of loosening at their next meeting in September. We expect that South African inflation will ease in Q3, while cuts from key central banks elsewhere – notably the US Fed …
A bill which recently passed the House to cut the FHA upfront mortgage premium by 25 bps for first-time buyers who take a financial management course is too small to halt the downward trend in the FHA market share. While a weaker labour market will slow …
Bank Indonesia (BI) today cut its benchmark interest rate from 6.0% to 5.75% and hinted that further easing is on the horizon. But the uncertain outlook for the currency means that this is unlikely to be the beginning of a prolonged easing cycle. Today’s …
