The recent undershooting of CPI used vehicle prices relative to wholesale auction prices appears, at least partly, to reflect a squeeze on dealer margins as demand has cooled. The upshot is that we shouldn’t necessarily expect the CPI measure to catch up …
19th April 2023
Our dataset on inflation expectations across EMs shows some encouraging falls recently and supports our view that, with EM inflation likely to fall further, monetary easing cycles will start in the coming months. However, inflation expectations remain …
We think euro-zone equities will struggle as the region’s economy weakens more than investors expect. Euro-zone equities have continued their strong year-to-date gains this month, with the short-lived dip on the back of the banking turmoil now fully …
This Update was originally published on 19 th April. We have updated the data, charts and text to reflect the growing divergence between inflation in the UK and elsewhere evident after today’s release of the UK inflation figures for May. Clients can read …
We think investors’ expectations for the Fed funds rate will fall a little by the end of this year, which will push the 10-year Treasury yield a bit lower by end-2023. But we doubt lower “risk-free” rates would be enough to prevent a sharp drop in the S&P …
Romania's economy has outperformed its peers in Central and Eastern Europe (CEE) over the past year, but domestic demand looks unsustainably strong and a period of weaker growth will be needed to reduce the large current account deficit. We forecast the …
Our in-house demand proxies for industrial metals picked up at the start of 2023, which is consistent with China re-opening and resilient macroeconomic data in most advanced economies. What’s more, we suspect that growth will have accelerated in …
Exhausted household savings and an upcoming recession is set to hit hotel demand over the next year or so. However, as happened in the aftermath of the GFC, some stretched households may decide to take a domestic holiday instead of a foreign one. We doubt …
Bank Indonesia (BI) today left interest rates unchanged (at 5.75%), and appeared to signal that further rate increases this year were unlikely. With inflation falling and growth easing, we expect interest rates to be left on hold for the remainder of the …
18th April 2023
While US equity REITs are a long way from discounting the “best of times” for US commercial real estate (CRE) over the coming quarters, listed real estate stocks in Europe appear braced for something not far off the “worst of times”. That is a difference …
17th April 2023
The increasingly diverse array of creditors to debt-distressed EM governments – and the difficulties in getting China and Western lenders to see eye to eye – is already gumming up sovereign debt restructurings. And despite some positive noises from the …
Recent events have highlighted that meeting regulatory capital and liquidity requirements does not guarantee that banks will be financially stable. The forthcoming EU bank stress test results should give a better idea of the banks’ health, but those tests …
A higher corporate tax would reduce corporate sector surpluses and could stimulate demand if the additional revenue were used to finance higher public spending or transfers to households. But the tax would have to be raised to implausibly high levels to …
Shift towards cheaper homes challenges statisticians The divergence between the Nationwide and Halifax House Price Indices (HPIs) of late has cast some doubt on the direction of house prices. A struggle to adjust the statistics for a shift towards cheaper …
Global sugar prices have surged by over 20% since the start of the year as production estimates in several key producers have been downgraded. We think the supply picture is unlikely to change by much over the next months and will keep prices elevated. …
14th April 2023
Financial market strains have eased over recent weeks, though some pockets of uncertainty remain and our sense is that the risk of further problems emerging in the coming months remains high. Since the forced takeover of Credit Suisse by rival UBS three …
After a strong 2022, we expect Warsaw offices to face a more difficult time ahead. Falling employment and hybrid working practices will limit any revival in demand after 2023 and leave rents underperforming both the CEE and wider European averages. The …
The Monetary Authority of Singapore (MAS) kept policy on hold today and with the economy set to struggle and inflation likely to fall sharply over the coming quarters we expect today’s decision to have marked an end to the tightening cycle. The MAS …
Although the Turkish lira is at its weakest ever level against the US dollar, it would have fallen far further by now were it not for intervention by policymakers. We anticipate that the currency will depreciate sharply before long against a backdrop of …
13th April 2023
The raft of EM CPI figures out this week show that headline inflation is, in aggregate, finally starting to fall significantly, and we expect it to decline further in the coming months. But core inflation is easing relatively slowly, and remains …
Although equity and oil prices are usually positively correlated, we think equities will struggle in the next few months and that oil prices will end this year somewhat higher than they are now. We also expect a rebound in equities across the board in …
The fading effects of the mini-budget meant that bank lending conditions to households and businesses didn’t deteriorate any further in Q1. But the latest credit conditions survey doesn’t capture the full extent of the tightening triggered by recent …
Despite the cost-of-living crisis, the leisure sector did better than expected last year as households used the savings they had built up during the pandemic to boost spending on recreation and restaurants. But with those savings now exhausted and real …
China’s commodity imports generally rose strongly in March which we think reflects higher demand as a result of the re-opening of the economy. While April data may also be strong, we expect import volumes to soften later in the year as export demand …
The shipping industry is notable as being both a vital artery of world trade and one of the trickiest sectors to de-carbonise. This Update looks at five key questions on the near-term plans to reduce emissions from the sector and the potential …
The Bank of Canada delivered a mixed message today, noting that it is more confident inflation will decline in the next few months, but less confident that inflation will fall all the way to 2.0% as quickly as previously anticipated. Nonetheless, with the …
12th April 2023
We’re not convinced by the arguments currently doing the rounds that military spending in Russia artificially boosted GDP in a significant way last year. While military spending has increased further this year and manufacturing in military-oriented …
Are European and UK commercial real estate markets facing the same level of distress as the US? Join our Property Drop-In on Wednesday, 14th February to learn more, Register here for the 20-minute session. Recent turmoil in the banking sector has …
11th April 2023
The Bank of Korea left interest rates unchanged (at 3.5%) for a second consecutive meeting today, and attempted to push back against expectations of a rate cut this year. But with the economy struggling badly and inflation continuing to ease, we are …
The UK stock market has been caught in the crossfire of recent sectoral trends in global equities, leading to a period of underperformance over the past month. Despite tentative signs of that going into reverse, we doubt that the MSCI UK Index will …
6th April 2023
Real estate exposures have not been central to financial developments in Europe over recent weeks, but, as property prices correct after a decade of steady expansion, some strains are likely to emerge. While not appearing systemic, these fragilities …
We anticipate that the S&P 500 will fall back later in 2023, largely because analysts are far from pricing in a recession in the US that we think is even more likely after the recent banking turmoil. Our forecast is that the index will reach a trough of …
JODI data on global oil and natural gas consumption reveal that global energy demand remained in the doldrums around the turn of the year. We suspect a recovery in natural gas demand is more likely to occur than in oil demand, as prices of the former have …
The RBI’s decision to keep the repo rate on hold at 6.50% today belied the central bank’s recent hawkish communications. The door remains ajar for hikes in the future but with headline inflation set to fall back to within the RBI’s 2-6% target range …
The Monetary Policy Report released by Chile’s central bank today revealed that policymakers are more concerned about inflation risks than we’d thought. We still think that Chile’s central bank will be among the first to start loosening monetary policy, …
5th April 2023
Models suggest recession coming soon Our composite models suggest the economy was on track to fall into recession soon even before the impact of the banking turmoil feeds through. There also appears to be a lower, but rising, chance that a recession has …
OPEC+ decision sends oil futures curves into steeper backwardation The surprise OPEC+ decision to cut oil production sent oil futures curves into steeper backwardation. This doesn’t necessarily mean that market participants see prices falling from here, …
The surprise decision by OPEC+ to cut production has meant we have revised up our oil price forecasts for end-2023 and end-2024. This does not materially change our outlook for inflation in advanced economies. And we still think weak economic growth there …
The historic drought afflicting Argentina will cause a steeper contraction in GDP than most expect this year and intensify balance of payments strains by reducing export earnings to the tune of 2-3% of GDP. That will make it hard to meet the IMF’s …
London office capital values fell by a relatively modest amount in the second half of last year and monthly data show values stabilised in the first two months of 2023. But that has left London office spreads very narrow at a time when the recent banking …
The decision by the Reserve Bank of New Zealand to lift its official cash rate by 50bp, to 5.25%, came as an upside surprise, but we still think the end of the hiking cycle is approaching. In any case, the Bank’s aggressive tightening confirms our view …
The sharp fall in job openings in February shows that labour demand was cooling even before the recent banking turmoil and provides another reason to think that the Fed’s tightening cycle is nearly over. The fall in vacancies and downward revision to …
4th April 2023
Sri Lanka’s central bank (CBSL) left interest rates unchanged today and we expect rates to stay on hold for the rest of the year as policymakers look to strike a balance between clamping down on inflation, maintaining good relations with the IMF and …
The widening in India’s current account deficit last year, to 2.4% of GDP, was not as significant as many had feared in the context of the surge in commodity prices. Looking ahead, we think the deficit will narrow over the coming quarters as domestic …
Note: Join our 6th April online briefing all about the risks to EMs from banking turmoil. Register now . Pakistan’s central bank (SBP) today raised its policy rate by a further 100bps (to 21.0%), but the tone of the statement was less hawkish than after …
Narrow money growth has turned negative as savers have shifted out of bank deposits and into money market funds and bonds, which now offer significantly higher returns. (See Chart 1.) Bank loan growth remains robust but, with the tightening in credit …
Data suggest that Nigeria’s key oil sector perked up in early-2023, but this was more than offset by weakness in the non-oil economy on the back of bungled demonetisation efforts. And we expect activity to remain subdued over the coming quarters given the …
The Reserve Bank of Australia kept open the possibility of further tightening when it decided to leave its cash rate unchanged at 3.60% today. As such, we do still expect the RBA to deliver one final 25bp rate hike in May before bringing its tightening …
Manufacturing PMIs: weaker activity and inflation The latest manufacturing PMIs suggest that global industrial activity was broadly flat in Q1, and confirm that the post-COVID rebound in China was concentrated in the service sector. The upside is that …
3rd April 2023
Note: Join our 6 th April online briefing all about the risks to EMs from banking turmoil. Register now . The manufacturing PMIs for March made for pretty downbeat reading in most EMs and the outlook for the coming months remains lacklustre. One source of …
