El Niño is coming but the picture is more nuanced than one of doom and gloom for global production of all crop types. For corn, soybeans, wheat and rice, larger harvests in some regions can outweigh declines in others. For prices, there are still upside …
14th July 2023
The recent rise in gilt yields to levels above those seen in the aftermath of the mini-Budget has not triggered a similar rush to sell property assets. In part because past falls in capital values mean multi-asset funds are unlikely to become overexposed …
Data released today show Singapore's economy remains very weak and we continue to expect growth to come in well below consensus this year. With inflation also falling back sharply, we expect the central bank to step in and support the ailing economy by …
June’s soft US CPI print seems to have given investors renewed hope that inflation could fall back to normal levels without the economy slowing too much, if at all. We continue to think that the chance of a more-significant economic slowdown is …
13th July 2023
China’s commodity import volumes remained high in June, helped by the economic re-opening, but they were held back by softening input-related demand for the manufacture of goods for export. As economies in Europe and the US flirt with recession, this will …
Surging mortgage rates are undoubtedly dissuading households from moving due to the cost of giving up low fixed rate mortgages, weighing on home sales and inventory. But a similar decrease in sales in the UK, which does not have long-term fixed rate …
Note: We’ll be discussing macro and market risks around El Niño’s return in a 20-minute briefing on Wednesday, 19 th July. Click here to register. The likelihood of an El Ni ño event over the second half of the year raises the risk that activity is …
The resilience of consumption over the past year is partly because households have been willing to save less of their income than before the pandemic, which lends some support to the idea that consumers have been drawing down a stock of “excess” savings …
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19 th July. Register here to join that 20-minute online briefing. Rising interest rates have led lenders to rein in the supply of credit to …
The sharp improvement in South Africa’s budget in recent years has started to reverse. And this trend is set to continue as austerity is eased ahead of the 2024 election and revenues fall short of expectations. The debt-to-GDP ratio will continue to rise, …
Lenders expect narrow spreads to keep upward pressure on mortgage rates The narrowing in interest margins reported by mortgage lenders in the Credit Conditions Survey suggests that mortgage rates won’t fall significantly anytime soon. Meanwhile, it became …
Not so long ago, a higher 10-year TIPS yield almost invariably meant an underperformance of US “growth” stocks vis-à-vis their “value” peers, a lower gold price, and a stronger dollar. That’s changed in 2023, though, with the relationships weakening …
The Bank of Korea today left interest rates unchanged (at 3.5%) and the accompanying statement and press conference were more hawkish than we had anticipated. Accordingly, we are pushing back the timing of when we think the central bank will start to …
Demand falls at fastest rate since last October As we expected, the rise in the average quoted mortgage rate from 4.4% in May to 5.1% in June caused agreed sales and new buyer enquiries to slump. The deterioration in market conditions has left surveyors …
Last year’s sharp weakening of the yen hasn’t boosted goods exports, not least because most exports are invoiced in foreign currency and exporters haven’t slashed prices. Instead, it has lifted corporate profits which has encouraged firms to invest more …
The Bank of Canada’s 25bp hike today, taking the policy rate to 5.0%, is likely to be the last in this cycle. With the labour market loosening, core inflation falling and the survey indicators implying that inflation expectations are normalising, we …
12th July 2023
Given our view that a big stock market rally fuelled by enthusiasm about AI is on the way, we expect equities in some IT and industrials subsectors to outperform, which would favour the US market. Equities in the US have fared markedly better than those …
The spot price of Asia LNG should trade at a premium to Europe’s TTF gas at end-2023 given stronger demand growth in Asia and the fact that LNG is more costly to produce. The spot price of liquefied natural gas (LNG) in Asia has periodically moved …
The likelihood of an El Niño event in the second half of this year adds to upside risks to global inflation and downside risks to activity. For the advanced economies, higher prices of agricultural commodities could slow the decline in food inflation. But …
The decision by the Reserve Bank of New Zealand to leave rates on hold at 5.50% came as a surprise to no one. Indeed, the Committee noted that monetary policy in New Zealand had turned restrictive far sooner than in many other economies. Although the Bank …
The upcoming election in Spain may result in a change of government, but it is unlikely to change the country’s short-term economic fortunes. Low inflation and a rebound in tourism will help GDP growth in Spain to outperform the rest of the euro-zone this …
11th July 2023
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19th July . Register here to join that 20-minute online briefing. To the extent that economic conditions influence general elections, and of …
Achieving the shipping industry’s new decarbonisation ambitions would inevitably make the cost of sea freight more expensive. However, it would probably have a negligible impact on consumer prices. As expected, the high-level meeting at the International …
Inflows into EM financial markets saw a further pick-up in the past month and are now at their highest level since late last year, driven by inflows into Turkey and India. Inflows to Turkey could be sustained if policymakers take further steps towards …
We think that the huge expansion of the Italian construction sector over the past two years has run its course, as the reduction in construction subsidies and tighter financial conditions will reduce demand and output. That said, the high backlog of work …
The surge in immigration and improvement in labour supply has helped ease wage growth moderately. But, with limited scope for a further rapid recovery in the labour force, we think a sustained period of weaker labour demand is required to pull wage …
10th July 2023
A severe El Niño event could be the harbinger of weak monsoon rains in India. This wouldn’t have as big an economic impact as it would have had a couple of decades ago. But it would harm employment and energy production. What’s more, it would push up …
The recent US experience seems to suggest that the household saving rate could fall further as Canadians draw down the savings they built up during the pandemic, supporting consumption. A closer look suggests that the saving rate overstates the health of …
The Bank of Israel (BoI) kept its policy rate on hold at 4.75% today, but its communications acknowledged the risk of having to hike rates again in the coming months if inflation data warrant it. We think they will and we expect the central bank to …
After a lacklustre 2022, the Brussels prime office market has had a brighter start to 2023, as rent growth accelerated while it slowed elsewhere in the euro-zone. But with a cooling jobs market set to weigh on net absorption and tight supply due to give …
There are circumstances in which the Bundesbank’s losses over the next few years could require it to be recapitalised by the German government. However, we think these are unlikely to occur and the Bundesbank will be able to “carry forward” losses and …
We still think the yields of long-dated sovereign bonds in Canada, Australia and New Zealand will fall by the end of this year, but no longer expect them to do so by much more than the yields of bonds elsewhere. Canada, Australia and New Zealand have led …
7th July 2023
China has stepped up its support of the renminbi and Japan appears to be edging closer to direct intervention to prop up the yen. While pressure from higher US interest rates may well continue in the short term, we think that both currencies will rebound …
The fall in job openings in May suggests that labour shortages continue to ease, although the rebound in the job quits rate implies that wage growth is set to slow only gradually. The renewed fall in the job openings rate to 5.9%, from 6.2% in April, …
6th July 2023
Tanzania’s economic growth will remain sluggish by past standards over the next couple of years due to the effects of persistent drought and tight fiscal policy. But with policymaking shifting in a more business-friendly direction under President Hassan …
Labour markets across Central and Eastern Europe (CEE) have remained tight over the past year despite the weakness in economic activity and we think this will remain the case as recoveries gather pace into 2024 and structural demographic headwinds remain …
We expect the Brazilian real to reverse its gains against the US dollar by the end of the year as Brazil’s central bank eases policy and risk sentiment deteriorates. Although it has fallen a bit over the past few weeks, the Brazilian real has risen nearly …
The fading of China’s reopening rebound will weigh on recoveries in EMs like Thailand and Hong Kong whose tourism sectors depend heavily on Chinese visitors, but otherwise we think it presents relatively limited headwinds to the rest of the emerging …
Tunisia is struggling to get an IMF deal over the line and, unless President Saied’s government agrees in the near-future to allow the dinar to fall and to implement a large fiscal consolidation, the risk of a messy balance of payments crisis and …
The Fed’s new FCI does a better job of illustrating the tightness of US financial conditions than various other measures. But our own FCI has had a better record at capturing turning points in real activity in recent decades, is timelier, more versatile, …
The shift to fixed mortgage rates and the rise in the number of homes owned outright means that while some borrowers face a sharp rise in mortgage payments other homeowners will sit out this interest rate cycle entirely. The most vulnerable group is …
The surge in Brazil’s exports since the start of the pandemic has helped the economy recover more quickly than we and most others had anticipated. And unlike previous spikes in exports, some of the windfall has been saved, which has caused the current …
The pandemic-induced shift towards homeworking caused a sharp fall in physical office occupancy rates. They have since recovered significantly but remain below pre-pandemic levels. And while lower physical office occupancy will feed through to weaker …
Twelve months on from last year’s political and economic crisis, Sri Lanka is slowly getting back on its feet. The economy looks set to rebound steadily over the coming quarters helped by a sharp drop in inflation, lower interest rates, a recovery in …
Although we expect emerging market (EM) policy rates to fall vis-a-vis the US this year, we don’t expect EM local-currency sovereign bonds to outperform US Treasuries until global growth picks up over 2024. EM central banks have generally shifted into …
5th July 2023
The long NHS waiting lists may be one reason why some people are unable to work and may therefore be contributing to inflation being higher in the UK than in other major economies. As the NHS waiting list is unlikely to shorten soon, we think that …
Expectations of fiscal stimulus in China have thrown previously floundering copper prices a lifeline. If policymakers go ahead, that may keep a floor under prices before a turnaround in construction in China and accelerating electric vehicle rollouts …
A significant number of EMs that were running large current account deficits last year – including much of Central and Eastern Europe (CEE), Peru and Chile – have seen dramatic improvements in their external positions. That limits the downside risks to …
After fluctuating between $500 and $600 per 1,000 board feet for most of this year, we expect the US lumber price to fall from around $520 today to $475 by the end of the year due to weaker demand. The key risk to our forecast is that concern grows about …
Activity in Saudi Arabia’s non-oil sector has continued to hold up well, but that is merely cushioning the blow to the economy from oil output cuts. The Kingdom’s economy contracted by 1.4% q/q on a seasonally-adjusted basis in Q1, which was driven by …
