The resilience of the economy and house prices, together with the strength of inflation, suggest that the Norges Bank will raise interest rates a bit further than we previously anticipated. We now forecast the Bank’s key policy rate to peak at 3.5% in …
15th February 2023
No matter who wins the race to be Nigeria’s next president, the public debt-to-GDP ratio is likely to remain on an upwards path in the near-term. But victory for an opposition candidate could make the fiscal outlook considerably brighter further down …
Anecdotal reports and high frequency data suggest that ongoing civil unrest in Peru is beginning to choke off activity at key copper mines. But, if recent history is anything to go by, output can rebound rapidly so long as any closures are brief. The …
Surge in sales erases Q1 recession fears The massive 3.0% m/m surge in retail sales in January may have been partly related to the unseasonably mild winter in the Northeast but, alongside the unexpected strength of payroll employment, it nevertheless …
The roots of the crisis in China’s property sector lie in the worsening long-term outlook for demand. This has not improved. But sales started the year so beaten down that a short-run cyclical recovery is likely. Sales of new residential property fell …
Signs of softening labour markets across Central and Eastern Europe (CEE) support our view that intense wage pressures in the region will ease in the coming months. Even so, we still think that wage growth will generally remain above levels consistent …
A further decline in US inflation seems largely priced in to financial markets. But we still think investors are too optimistic about how quickly the economy will grow, and as such are sticking with our view that equities will come under renewed pressure, …
14th February 2023
The surge in employment in January highlights that some sectors are still recovering strongly and raises the prospect that the economy could avoid recession, although we still judge that a modest one is more likely than not. As the employment gains have …
While Singapore’s government has framed today’s budget as being designed to help poorer households cope with a rise in the cost of living, the main macro impact is a tightening of fiscal policy at a time when the economy is already facing several …
Prague retail saw an unexpected rental uplift at the end of 2022, ending three years of decline. But we think that will be a false dawn and expect that a subdued consumer outlook will combine with existing structural weaknesses to push rents down again …
13th February 2023
Central banks need wage growth to slow significantly before they can judge that inflation is firmly under control. The least painful way for this to happen is for the recent rise in “mismatch” between workers and vacancies to reverse. However, we think …
Given that US economic outperformance has tended to coincide with a stronger dollar, we suspect a “soft landing” in the US economy would provide a favourable backdrop for the greenback, if it also meant that growth in the US remained more resilient than …
10th February 2023
We think stock markets in several commodity-intensive countries will benefit from China’s ongoing reopening, which, in our view, will mean commodity prices rise further by the end of the year. The end of the zero-COVID policy and a renewed focus on …
Almost three years on from the pandemic, only middle-income households are yet to recover financially. In the face of a looming downturn, we expect this will drive growth for discounters as middle-income households trade down their spending habits, …
A plunge in credit spreads in recent months suggests to us that there is now limited scope for corporate bonds to outperform government bonds over the next couple of years, even if the global economy holds up relatively well. And if we are right about …
The raft of EM central bank meetings over the past couple of weeks reinforces the view that monetary tightening cycles have now drawn to a close or are very close to doing so, several months earlier than in their DM counterparts. Policymakers in some EM …
Some of the moves in China’s financial markets that followed its rapid reopening – including a rise in equity prices, higher bond yields and stronger renminbi – have unwound in the past couple of weeks, but we think they will resume before too long. …
We doubt the recent renewed outperformance of the “big-tech” sectors of the US stock market will continue in the coming months given the prospect of a mild recession, even if TIPS yields fall again. Despite some disappointing news on the earnings front, …
9th February 2023
We expect stretched affordability and rising unemployment to lead to an increase in rental arrears and evictions in the coming quarters, causing rental household formation to turn negative and apartment demand to soften. We have argued since mid-2022 that …
Overall services price growth has already slowed but, for the Bank of Canada to loosen policy, we will need to see far more convincing signs of lower inflation in the most labour-intensive service sectors. The Bank has stressed that it is following …
We expect “high-beta” developed market (DM) currencies to weaken against the dollar over the coming months as risk sentiment worsens and, in some cases, yield gaps move against them. But we anticipate a rebound in appetite for risk later this year and …
Slowing jobs growth, a tech-driven slump in net absorption and a strong supply pipeline underline our view that Dublin prime office rents will fall slightly this year. This would mark a sharp correction from the bumper rent growth in 2022 and is more …
The Adani saga hasn’t done much to reduce the comparatively stretched valuation of India’s stock market. In our view, that means there is still scope for it to underperform over the long run. India’s stock market generally avoided the sell-offs seen in …
We think business insolvencies may rise to a record high of around 8,400 per quarter by Q2 2024 and take until at least early 2025 to return to a more “normal” level of just over 4,000 per quarter. The total rise in insolvencies above this normal level is …
The Riksbank’s 50bp rate hike today was expected but the decision to begin actively selling government bonds and the emphasis on the exchange rate were a surprise. Possibly this simply reflects the new Governor’s desire to make his mark. Either way, we …
Foreign capital inflows have been soft this year in spite of the improvement in the economic outlook for EMs and the weaker dollar. And the very latest data suggest that capital has flowed out of EMs recently, which is a trend that we think is likely to …
The unexpected surge in payroll employment in January has led to claims of an economic resurgence that will force the Fed to keep hiking interest rates but, on balance, we still think the real economy is losing momentum and will eventually tip into …
8th February 2023
Brazil’s president Lula seems to be on the warpath in his quest for lower interest rates and now has the central bank’s (BCB’s) independence in his sights. Were Lula to get his way, the experience from Brazil in the early 2010s and elsewhere in the …
Tunisia’s fragile balance of payments of position has deteriorated further over the past year and the dinar appears increasingly overvalued. We think that the currency needs to fall by at least 30% against the euro to restore competitiveness. The approval …
We think sovereign bond yields in Canada, Australia, and New Zealand will drop further by end-2023. The central banks of Canada, Australia, and New Zealand have generally been at the forefront of this tightening cycle in terms of starting to hike rates ( …
The RBI further slowed the pace of monetary tightening with a 25bp hike to the repo rate (to 6.50%) today and, though it has left the door ajar for further tightening, the softer growth outlook and improvement in the inflation picture suggests to us …
The recent earthquakes that hit Turkey and Syria are a human tragedy and foremost in everyone’s minds. Nonetheless, the financial markets will also need to bear in mind the economic cost and, to the extent that this provides some comfort, the damage to …
7th February 2023
A stronger than expected end to last year only postpones the euro-zone recession in our view. That will weigh slightly more heavily on property performance this year, as all-property rents may now fall slightly. But with yields rising faster than expected …
The surge in interest rates and tightening in credit conditions last year resulted in a broad-based plunge in loan demand in the fourth quarter. Most banks expect to continue tightening standards this year, suggests the recent drop back in long-term …
Investors’ concerns about sovereign debt risks in frontier markets have eased a touch recently but several countries, particularly Tunisia and Pakistan, remain on the path to default. The latest (and last-minute) demands from China in debt talks with …
The RBA raised interest rates by another 25bp and signalled that further tightening will be needed. We’re sticking to our forecast that the Bank will lift the cash rate to an above-consensus 3.85% by April. The Bank’s decision to lift the cash rate from …
Most, but not all measures of house prices show that they are falling. That has led some to contend that cash buyers may be supporting prices. But we think it is just a matter of time before the ONS House Price Index (HPI) catches up with the Nationwide …
6th February 2023
The newly-appointed head of the Brazilian development bank, BNDES, takes charge today and is likely to be under pressure to increase lending. But the experience from the 2000s suggests that credit provided by BNDES will do little to alleviate the …
We expect a further slowing in office completions over the next few years as a combination of factors weigh on the profitability of new projects. But our latest review of the metro-level completion forecasts saw large upward revisions for Austin, NYC and …
3rd February 2023
While some of the measures unveiled in the FY23/24 Union Budget are geared towards shoring up popular support ahead of next year’s general election, there is a clear long-term focus too. The projected jump in capital expenditure, cuts to import duties on …
Despite some better news recently, we still think that advanced economies face a tough couple of quarters, an outturn which does not seem to be fully discounted in financial markets. With this in mind, our view remains that risky assets in general will …
The EU’s imminent ban on Russia’s refined oil may see EU prices rise, but major disruption is unlikely. Even so, Russia will find it more difficult to find new buyers for its refined oil than it did with crude. The EU will need to find alternate supplies …
The rise in yields in the final quarter of last year was larger than that seen at the start of the GFC. While the magnitude of the rise can be explained by the jump in risk-free interest rates, the speed of the repricing has been a surprise. The surge in …
The Central Bank of Egypt (CBE) surprisingly left interest rates unchanged at Thursday’s MPC meeting but, with inflation likely to rise even further above the central bank’s target, we still think that policy will be tightened further. We have pencilled …
The global supply of platinum group metals is likely to be increasingly strained by electricity shortages in South Africa. This poor supply outlook is a key reason why we forecast the prices of these metals to remain high over the next year or so, even as …
We’ve received a lot of questions recently about the impact of China’s re-opening on EMs, including at our monthly Drop-in today. This Update answers three key questions on the winners and losers, the inflationary impact and the outlook for EM financial …
2nd February 2023
The hawkish tone struck by the Czech National Bank (CNB) as it left its policy rate on hold again today, at 7.00%, isn’t prompting us to abandon our view that rates will be cut around the middle of this year. That said, we have now pushed the timing of …
Whereas the Bank of England and (arguably) the Fed delivered dovish surprises over the past twenty four hours, we think the ECB decision did not amount to a clear change of policy stance. The ECB is still likely to raise its deposit rate from 2.5% today …
The reversal of China’s zero-COVID policy means Chinese tourists could return to European high streets sooner than expected. While this should help support occupier demand, it seems unlikely it will be sufficient to offset weakness in domestic spending. …
The suggestion by Brazil’s President Lula that the central bank’s inflation target should be raised is likely to be a bigger concern for the second half of his presidential term (2025-26) than the first half (2023-24). While Lula seems to be motivated by …
