With the economy doing better recently, the Bank of Canada’s decision to cut by 25bp today might have been a closer call were it not for the looming threat of tariffs. Admittedly, the Bank hinted that it might have to refrain from providing more policy …
29th January 2025
This is a revamped version of our quarterly Financial Risk Monitor to include commentary and analysis of our latest EM risk indicators. Currency risks remain low, but fiscal vulnerabilities continue to lurk Financial vulnerabilities remained near …
The latest investment figures suggest an upturn in industrial activity after a long slump. But given both stretched valuations and continued economic uncertainty, it may be too early to rule out a relapse in the next couple of quarters, while any recovery …
Euro-zone money and lending growth data paint a rosier picture of the economy’s near-term prospects than the latest business surveys and suggest that the impact of ECB rate cuts is feeding through. However, that won’t stop the Bank from cutting interest …
US bank stocks in the S&P 500 have generally outperformed their peers over the past year and the key factors driving this look set to persist in 2025. So, we think they will remain around the front of the pack. The S&P 500 Banks Index enjoyed a strong …
28th January 2025
Although European natural gas prices will still influence EU carbon prices in the near-term, investors’ recent optimism suggests that expectations for a tighter carbon market down the line are starting to drive a wedge between carbon and gas prices. The …
The Q4 data suggest that appraisals are lagging the market correction, with transaction-based cap rates still significantly above those reported in the indices. Our expectation that this gap closes in 2025 underpins our below-consensus forecasts for …
27th January 2025
Iron ore prices have been supported by optimism that policy stimulus may prevent a marked downturn in China’s construction sector. But we think that any stimulus-led boost will prove temporary and iron ore demand will weaken. Given that new low-cost …
This Update answers some key questions about the likely implications of the US imposing 25% tariffs against Canada and Mexico. Our current forecasts are based on the assumption of a 10% universal tariff and hence growing speculation about more aggressive …
Thailand’s recovery from the COVID-19 pandemic has not only been much weaker than that experienced in other parts of Asia, but also compared with past crises. The weakness of the economy is the key reason why inflation in Thailand is so low, and we think …
India’s outbound tourism market is poised to become one of the world’s largest over the coming years. The Maldives and the UAE are arguably the biggest beneficiaries, though Oman and Thailand are well placed to take advantage too. Other EMs – particularly …
Traditionally, our bearish view on industrial metals, informed by China’s struggling property sector , would lead us to expect weakness in silver demand and prices. But given the growing use of silver in fast-growing and non-cyclical sectors, as well as …
The raft of export restrictions introduced earlier this month are the latest escalation in China’s shift to a more assertive export control regime. The use of such non-tariff measures is likely to intensify over the coming years, if as we anticipate, …
An unexpected loss of momentum The PMIs suggest that China’s economy lost some momentum in January, despite tailwinds from recent policy easing. The breakdown suggests that exporters were downbeat even ahead of Trump's latest tariff announcement. But …
The experience from other advanced economies is that there’s no hard and fast rule for how long it will take for the labour market to loosen in response to rate hikes by the Bank of Japan. But with the real policy stance set to remain loose, we expect the …
The first week of the new Trump administration hasn’t thrown up any huge surprises in terms of policy announcements. But there remains considerable uncertainty about the impact of those policies and others mooted on commercial real estate. In this note we …
24th January 2025
At face value, the latest batch of flash PMIs suggest that economic activity remained weak in Europe at the start of the year and lost some momentum in the US. Meanwhile, price pressures seem to be increasing everywhere, meaning that most central banks …
We forecast bond yields to fall over the rest of 2025 in Germany, the UK, and New Zealand, even though we think the relief rally in US Treasuries is over. And we anticipate yields to rise in Japan. The global sell-off in bonds seems to have paused. Bonds …
The Bank of Japan signalled further tightening when it lifted its policy rate to 0.5% today. With inflation set to remain above its 2% target this year, we expect the policy rate to reach 1.25% next year. The Bank’s decision to lift interest rates to 0.5% …
Renewed rises in market interest rates across the UK, US and euro-zone have prompted questions about the implications for real estate. For now, we think the upside risk to property yields is small. We still anticipate government bond yields to fall back …
23rd January 2025
When central bankers give guidance on likely interest rates changes in the next month or two, it’s probably best to believe them. But experience shows that banks’ own interest rate forecasts are very unreliable beyond three to six months in the future. …
We held an online briefing yesterday on Mexico’s economy and how it may be impacted by the Trump administration. (Listen to the on-demand recording here .) This Update answers some the key questions that came up. How do you interpret the threatened 25% …
Our analysis suggests that most of the recent rise in the household saving rate can be attributed to cyclical rather than structural factors, which means the saving rate will slowly fall as interest rates decline. That lends support to our view that …
Today’s policy announcement confirms that Norges Bank is likely to start cutting interest rates at its meeting in March, almost certainly with a 25bp reduction to 4.25%. We think it will then loosen monetary policy a little more quickly than its latest …
President Trump’s threats to retake ownership of the Panama Canal reflects its importance for US trade and the country’s strategic interests. It’s possible that these threats are simply another attempt to gain concessions, such as lower fees charged to …
We are pessimistic about the outlook for most emerging market assets in 2025, due to the effects of Donald Trump’s agenda, slowing Chinese activity, subdued commodity prices, and domestic challenges. Trump’s first day in office proved a decent one for …
22nd January 2025
Headline inflation in Asia has continued to ease over the past year and is now back to (or below) target everywhere. We expect inflation to remain subdued over the coming year as improved growing conditions help keep a lid on food prices and below-trend …
South Africa’s activity data for November points to a strong end to last year, underpinned by the mining and retail sectors. We think GDP will expand by an above-consensus 2.3% in 2025. The retail sales data released today showed that the sector continued …
Egypt’s economy has struggled over the past year due to the effects of a weak pound, high inflation, and tighter fiscal and monetary policy, but there have been signs recently that a recovery is taking hold. We expect GDP growth will strengthen, and by …
We think Trump’s trade policies will weigh on equity returns outside of the US, making 2025 a year of muted returns for emerging market (EM) equities. But we think it will still be a decent year for stocks in other developed markets (DMs). (See Charts 1 & …
The underperformance of the German office-based jobs sector since 2019 has been stark and the weak outlook for the economy suggests a material reversal is unlikely in the next five years. This will hold back office demand compared to the other main …
Hopes that Finance Minister Nirmala Sitharaman will deliver a big fiscal package to get the economy out of its recent soft patch in the upcoming Union Budget are likely to be disappointed. Some more accommodative tax and spending measures are on the …
President Donald Trump for now at least appears to be in favour of the H-1B visa scheme, a key route for Indians to work in the US tech sector, but the scheme is a key source of friction among his supporters. If restrictions around H-1B visas are …
21st January 2025
The “America First Trade Policy” White House memorandum makes it clear that tariffs are coming, although we still have little clarity on the timing. There are some signs that a universal tariff could come later than in the second quarter as we have …
The precarious nature of the outlook for the Federal budget deficit is well appreciated at this stage, but arguably the bigger long-term risk is the mounting current account deficit . With the primary income balance no longer in surplus and the dollar …
Vietnam could take a number of measures to reduce its huge bilateral trade surplus with the US, notably stepping up its purchases of US farm products and clamping down on transshipments from China. But even if these were successful, they would still leave …
We aren’t overly worried about the impact of higher bond yields on Japan’s public finances because rising interest rates are a direct consequence of higher inflation. With the effective interest rate on public debt set to rise only slowly, the net impact …
President Donald Trump returned to the White House today with pen already in hand to sign what is expected to be close to 100 executive orders. That flurry of executive action will set the tone on what we can expect from his administration in a wide range …
20th January 2025
The Bank of Canada’s latest business and consumer surveys support our view that GDP growth will pick-up this quarter and suggest there are some upside risks to our forecast for another 75bp of interest rate cuts this year. That said, given the threat of …
We know that the economy flatlined or suffered a small contraction in Q4. But that would have been much worse if not for what appears to be a rise in government spending, which will play an important role in driving GDP growth throughout 2025 too. With …
Capital outflows from EMs have picked up again over the past few weeks amid a strengthening of the US dollar and broad increases in bond yields, but also country-specific issues – most notable declining optimism about the outlook for India’s economy and …
Saudi Arabia’s government has been the largest EM issuer of hard currency debt over the past few years and this Update considers what will happen to the Kingdom’s public debt burden under different scenarios for oil prices. The overall conclusion is that …
China’s exports of the “New Three” ended last year at a new record high as US firms continued to ramp-up imports of Chinese-made batteries. Meanwhile, the backdrop of heightened tariffs and slowing green transitions in developed countries has resulted in …
With commercial property capital values stabilising and credit conditions easing, the stage was set for a decent recovery in investment this year. However, the recent rise in gilt yields has cast a shadow over the outlook and a fall in UK REIT pricing …
17th January 2025
Services inflation in the euro-zone was stuck around 4% last year but we remain convinced that it will decline significantly in 2025. Data released today confirmed that euro-zone headline inflation rose from 2.2% in November to 2.4% in December. The core …
We think Treasury yields will fall over the remainder of this year, but that the yield curve could nonetheless continue to steepen. The sell-off in Treasuries has gone into reverse in the back half of this week, as the December CPI print seemingly …
Six months since its formation, South Africa’s Government of National Unity (GNU) has fostered a lot of goodwill in the market. Loadshedding is seemingly a thing of the past, logistics constraints have eased, and the fiscal position has improved. But …
16th January 2025
The Israeli cabinet’s decision to delay a vote on approving the ceasefire with Hamas adds a high degree of uncertainty as to whether it will take e ffect on Sunday, as intended. If a ceasefire can stick, it could lead to a sustained improvement in the …
Higher bond yields a risk to fragile recovery The rise in house prices in December builds on November’s gain, providing some support to our view that house prices will rise by a healthy 4% this year. That said, with the sales-to-new listing ratio dropping …
We think China’s 10-year government bond yield will fall to fresh record lows over the coming year, partly because the other investment options available to Chinese investors look increasingly unappealing. Chinese government bond yields are around record …
