While today’s agreement on the EU’s “Carbon Border Adjustment Mechanism” leaves vital questions unanswered, it is a step towards the valid goal of making users pay for the emissions that they consume – wherever such emissions are produced. This Update …
13th December 2022
Despite some mixed signals in the recent data, we still expect the tentative easing of labour market conditions already seen to push wage growth lower soon, with that slowdown gathering pace as employment growth continues trending lower. The November …
The full impact of the RBA’s aggressive tightening cycle on household finances hasn’t been felt yet because one-third of all mortgages have fixed-rates. Around 60% of those will expire next year and the impact on household finances will be equivalent to …
The real returns from both US equities and 10-year Treasuries have often been quite good in the couple of years after past peaks in core inflation in the US, but the period following peak inflation in the early 1980s was an exception. We think that this …
12th December 2022
Although US corporate bond spreads have been falling since mid-October, we expect them to rise again before long as the global economy slips into recession. The spreads of investment-grade US corporate bonds, as captured by the option-adjusted spread …
We expect inflation to remain above the Bank of Japan’s 2% target through the middle of next year despite government utility price caps and falling non-food inflation over that period. One reason is that higher food import prices in recent months will …
The worsening tripledemic of Covid, influenza and RSV is unlikely to have a significant impact on economic growth, but it could weigh on employment and hours worked over the next few months. Covid case numbers remain relatively low but have been rising …
11th December 2022
Even if oil prices don’t rebound substantially in the near term, we doubt developed market equities in the energy sector will reverse course and underperform the rest of the stock market next year. Developed market (DM) energy stocks have outperformed the …
9th December 2022
The Canadian dollar has underperformed most other currencies over recent weeks, and we expect it to depreciate further against the US dollar over the first half of next year. The loonie has been the worst performer among major currencies since the US CPI …
The rise in net lending to real estate over the past couple of months may reflect some investors looking to buy commercial property assets at discounted prices. But a repeat of the mid-2000s, when lending held up even as commercial values started to fall, …
We expect the 10-year Treasury yield to decline only a little further as US inflation continues to ease. Treasury yields have fallen sharply in recent weeks, as investors have revised down their expectations for the path of the federal funds rate . The …
We suspect that the S&P 500 will make a new cyclical low by the spring of 2023 as a shallow recession gets underway in the US, before rebounding to end next year higher than it is now. Our forecast is that there will be a mild economic downturn in the US …
8th December 2022
Money growth has stagnated as the Fed’s monetary tightening ramps up, and, while bank loan growth remains robust, we expect it to fade in response to the lagged impact of higher rates and tighter credit conditions. (See Chart 1.) To the extent that …
The single-family rental market has been on a roll since the GFC and the pandemic provided a further boost. Nonetheless, while it may hold up slightly better than multifamily over the next year or so, affordability pressures mean that current rental …
The impeachment of Peru’s controversial (former) left-wing President Pedro Castillo might bring short-term relief to investors, but it does not solve Peru’s governability issues. With policy paralysis here to stay, business confidence and investment are …
Rather surprisingly, commodity imports generally ticked up in November, despite the wider deterioration in China’s trade position. However, we think this reflects undue optimism about an imminent pick-up in economic activity. Accordingly, we could see …
The statement accompanying the Brazilian central bank’s meeting yesterday, at which the Selic rate was left at 13.75%, made clear that policymakers are increasingly concerned about fiscal loosening when president-elect Lula takes power. This reinforces …
The Bank of Canada delivered a somewhat dovish 50bp rate hike today, by softening its explicit forward guidance that interest rates will need to rise further. Our GDP and inflation forecasts suggest there is little need for the Bank to raise rates …
7th December 2022
As the authorities in Ghana take further steps towards a debt restructuring, in this Update we take stock of the latest developments and their economic implications. The twists and turns of Ghana’s unfolding economic crisis as well as policymakers’ …
Headline inflation in Central and Eastern Europe (CEE) will peak in most countries in the next few months, at around 20% y/y, and should fall to single-digits across the region by end-2023. But we think this initial large disinflation process will give …
The RBI slowed the pace of monetary tightening with a 35bp hike to the repo rate (to 6.25%) and, with headline inflation set to ease further and growth entering a softer patch, we think the central bank will call a halt to tightening in February. Further …
The better-than-expected 263,000 gain in non-farm payroll employment suggests it’s still the best of times in the labour market but, digging below the surface, there are worrying signs that it could be the worst of times soon. Although non-farm payroll …
6th December 2022
President-elect Lula’s plans to increase spending could raise Brazil’s public debt ratio by an additional 10% of GDP by the end of his presidential term in 2026. And while it seems likely that these plans will get diluted in congress, they still …
We are nudging up our euro-zone GDP forecast slightly to reflect the small improvement in the economic data in recent months and an easing of the energy crisis. Nonetheless, we still think euro-zone GDP will contract much more than the consensus …
The RBA today hiked the cash rate by 25bp as widely anticipated and while the statement was marginally less hawkish, we’re sticking to our view that the Bank will lift the cash rate to 3.85% by April. The Bank’s decision to lift the cash rate from 2.85% …
The proposed caps on domestic prices of thermal coal and natural gas are unlikely to be a major drag on mining investment because the bulk of coal and gas production is exported. And by helping to reduce inflation, they will allow the RBA to keep monetary …
5th December 2022
While food inflation has surprised to the upside in major DMs, it seems to be at or near a peak. We expect a combination of base effects and an easing of underlying price pressures to drag on food inflation in 2023. Food inflation soared in the past …
2nd December 2022
Our forecast for a drop in house prices means renting looks a better option than buying for any holding period under 10 years. While this will encourage some potential buyers to rent instead, we doubt it will provide much support to the rental market …
There are only a few days to go until the next packages of EU sanctions on Russia targeting its oil trade come into force. There are a few key details still left to be finalised, but it seems to us that disruption to Russia’s oil trade and production is …
Despite the rally that began in October continuing throughout November, US equities still underperformed their European counterparts in common-currency terms last month. Admittedly, exchange rate effects played a big role in that as the US dollar weakened …
There is a good chance that CPI inflation has peaked or will peak before the end of the year. There are even some signs that inflation is becoming less persistent. This may contribute to the Bank of England slowing the pace of rate hikes from 75 basis …
Following the Nationwide data showing a larger-than-expected fall in house prices in November, we hosted an online Drop-In on 1 st December to discuss how far prices could fall and what the downturn could mean for transactions and construction. This …
If China’s authorities were to accelerate the abandonment of their zero-COVID policies, we think it could actually prove a headwind for global asset prices. But we doubt they will do so for a while yet. The protests in China in recent days have …
The EM manufacturing PMI broadly plateaued in November, but the surveys remained weak in parts of Central Europe and recorded sharp declines in Brazil, Colombia and Vietnam. On the bright side, price pressures appear to be easing further . The aggregate …
1st December 2022
The latest manufacturing PMIs suggest that global industrial production is contracting, albeit with some signs of a slowdown in the pace of contraction in Europe. Product shortages have diminished almost everywhere, with any disruption related to China …
The latest manufacturing PMI data from China strengthens our view that China’s industrial metals demand growth slowed in November and will probably weaken further in December. China’s Caixin manufacturing PMI , released today, rose from 49.2 in October to …
The damning report into corruption allegations surrounding South Africa’s President Cyril Ramaphosa has increased the possibility of him either resigning or being removed from office. Even if he stays on, the ruling ANC’s popularity will take a hit. To …
The further falls in job openings and voluntary quits in October indicate that labour market conditions are continuing to ease gradually, which should keep downward pressure on wage growth. The fall in the job openings rate to 6.3% in October left it in …
30th November 2022
While the progressive inversion of the Treasury yield curve may seem inconsistent with the recent rebound in risky assets in the US, they had already discounted some bad news about the economy. Nonetheless, we still think there is scope for the rally in …
Croatia’s adoption of the euro on 1 st January 2023 is likely to bring only small benefits to the economy given how widely used the euro already is in the country. Even so, we think prospects for Croatia’s economy remain bright and expect it to outperform …
We hosted an online Drop-In yesterday to discuss China’s COVID outbreak and its domestic and global implications. This Update answers several of the questions that we received, some of which we couldn’t fit in during the event and some that we are …
EM GDP rebounded in Q3, but this is unlikely to be the start of a sustained upturn. Headwinds in the form of high inflation, tight monetary policy and weak external demand will drag on growth in the coming year and our 2023 GDP forecasts are generally …
As we now think Bank Rate will peak at 4.50% next year as opposed to 5.00%, mortgage rates will be a bit lower in 2023. But ultimately, the surge in mortgage rates over the past year will leave the cost of buying a home with a mortgage exceptionally high, …
Although the rally in the US dollar has seen a significant reversal over recent weeks, indicators from past turning points in the greenback suggest to us that there remains scope for the dollar to reach fresh cyclical highs if, as we expect, a global …
29th November 2022
Industry across Central and Eastern Europe (CEE) has held up better than might have been expected this year given the extent of the energy price shock. While output in energy-intensive industry has declined by 5-10% this year, that has been more than …
The sharp fall in employment we expect next year will drag on Italian office rents. While prime rents should hold up better than the wider market as the shift to the best quality space continues, we don’t think that this will be enough to prevent them …
The authorities will not allow a protest movement to occupy China’s streets for any length of time. If the protests continue, a crackdown is very likely. They have no good options in the near-term to address protestors’ demands: relaxation of strict COVID …
28th November 2022
Warning lights flashing red despite solid activity data Despite the recent resilience of the hard economic data, the most reliable forward-looking indicators suggest that a recession is unavoidable – our six-month ahead composite model puts the odds at …
We think the stretched valuations of Indian equities compared to those elsewhere will prevent the standout performance of Indian equities seen so far in 2022 being sustained over the longer run. The performance of India’s stock market has been fairly …
With China now battling its most widespread COVID-19 outbreak since the start of the pandemic, the country and its economy face a dire few weeks. As a result, China’s demand for oil will come under pressure, and potentially its demand for natural gas and …
25th November 2022
