The news that Tunisia has reached a staff-level agreement with the IMF over a $1.9bn financing package provides hope that the economy will avoid a messy balance of payments crisis. But there are still hurdles to overcome to seal the deal. And even with …
17th October 2022
General Secretary Xi’s Report to the Party Congress signalled a further shift away from market-based reforms in favour of a state-led campaign to increase self-sufficiency and economic security. Investors should also be wary of the growing focus on …
With interest rates now higher, we have made downgrades to our forecast for UK GDP growth. We expect that this will bring a sharper deceleration in rental growth at the all-property level, with falls now likely during 2023, led by the office sector. We …
With the yen approaching 150 against the dollar, we now expect underlying inflation to climb to 2.5% by early-2023 instead of our previous forecast of 2.0%. But as this will happen when the global economy is in recession, we don’t expect the Bank of Japan …
Australia’s record housing downturn may not result in dwellings investment falling quite as sharply as we’re anticipating. However, the largest wealth destruction in Australia’s modern history poses downside risks to our forecast of a 2.5% rise in …
The spread between the 10-year Gilt yield hedged in US dollar terms and the 10-year Treasury yield has widened dramatically of late. But given our forecasts for short-term interest rates in the UK and the US and the unhedged government bond yields in …
14th October 2022
Despite the hot September US CPI print from yesterday, we still expect Treasury yields to drop back over time. And we think the drop will mostly be driven by falls in the real yield, rather than inflation compensation. Our US Economics Service is the …
We suspect that the reduced liquidity of inflation-protected Treasuries vis-à-vis their conventional counterparts is one reason why the price of gold has not fallen as much as might have been expected in the face of a surge in long-dated TIPS yields. …
The Monetary Authority of Singapore (MAS) tightened policy today, in an attempt to contain elevated price pressures, but with inflation likely to fall in the coming quarters and the economy set to struggle, we expect this move to have marked an end to the …
While the Fed isn’t likely to follow the Bank of England in pausing QT in response to upward pressure on long-term government bond yields, the reduction of the Fed’s balance sheet could end sooner and be significantly smaller than we had first thought. …
13th October 2022
Strictly speaking, recent measures by the Bank of England do not qualify as so-called “fiscal dominance”. But this could be the thin end of the wedge, and not just for the UK. While we are a long way off central banks in developed economies directly …
Chile’s central bank (BCCh) became the latest in the emerging world to end its tightening cycle yesterday. But with inflation only likely to fall back towards target in late-2023 and the external position in a fragile state, monetary policy will be kept …
One question that we frequently get asked is which EM could be the next Sri Lanka. While there are several candidates, Tunisia concerns us most. The good news for the rest of the world is that the most vulnerable countries’ sovereign foreign bonds are …
There is no prospect of China lifting its zero-COVID policy in the near future and it probably won’t happen before the end of 2023. If the leadership did want to transition to living with the virus, it would first have to raise the vaccination rate of …
We think that traditional “defensive” sectors of the US stock market – consumer staples, health care and utilities – will continue to hold up better than “tech-orientated” sectors – information technology (IT), consumer discretionary and communication …
12th October 2022
We expect the aussie and the kiwi to weaken further against the US dollar and trough around mid-2023. And while we don’t expect the aussie to outperform the kiwi as it has recently, we think it will largely cling on to its recent gains and expect the …
With a mild recession now built into our forecast, the outlook for commercial real estate performance has worsened. But because this is a relatively small downgrade and it is joined by an expectation that the Fed cuts rates sooner than previously thought, …
Ghana’s economy held up well in the first half of this year but high and rising inflation, combined with monetary and fiscal tightening, means that a sharp slowdown is on the cards. Talks with the IMF over a financing package are underway but this looks …
The dollar’s appreciation is bad news for the global economy, as it will weigh further on demand for traded goods and add to global inflationary pressures. It is another reason why we expect the global economy to fall into recession next year, and risks …
The decision by the Bank of Korea to raise its policy rate by a further 50bp (to 3.0%) indicates the central bank’s near-term focus will remain on combating inflation. But with growth slowing and price pressures already having peaked, we think the …
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
In response to a surge in withdrawals as pension funds rushed to secure cash to meet margin calls, several property funds implemented restrictions to prevent the need for a fire-sale of assets. To date no retail funds have had to impose similar …
China’s economy has essentially stalled. This does not mean that aggregate growth in the rest of the world will automatically slow, but there will be winners and losers at a country level. Recent economic news from China has been dismal. (See here .) We …
Its widely accepted that the jump in mortgage rates from 1.5% last autumn to 6% means that a significant fall in house prices is now inevitable. In this Update we set out how we came to our forecast that prices will fall by around 12% in nominal terms, …
10th October 2022
Japanese firms’ holdings of interest-bearing assets have risen relative to their interest-bearing liabilities and some are suggesting that they benefit from rising interest rates as a result. But with domestic interest rates little changed as the Bank …
Although we think that US equity REITs may have further to fall, we don’t expect them to continue to underperform the broader US stock market. The key reason is that we don’t expect Treasury yields to rise further. In fact, given our forecast for the …
7th October 2022
We think the US stock market will fall further even after Treasury yields drop back, as the equity risk premium rises and expectations for earnings are downgraded amid a deteriorating economic backdrop. Treasuries have exerted a big influence on US …
Recent revisions to our euro-zone interest rate and bond yield view suggest there is upside risk to our forecasts for prime commercial property yields. With the deteriorating economic outlook also set to weigh on rental growth, this suggests the …
Against a backdrop of higher mortgage rates, a weaker economy and prices falling earlier than expected, we have cut our forecast and now expect a peak-to-trough fall in house prices of 8%, down from our previous view that prices would drop by 5%. That …
6th October 2022
Yesterday’s decision by OPEC+ to cut oil production quotas by 2mn bpd adds to signs that, in a world economy that is fracturing, Saudi Arabia is tilting away from the US and leaning towards a China-led camp. That would threaten to undermine the push by …
With pr ic e pressures still strong, the looming global recession is unlikely to derail central banks’ tightening plans in the months ahead. While the RBA quoted the deteriorating global outlook when it recently decided to slow the pace of rate hikes in …
We think the Charlotte office market will continue to outperform the US average, as firms capitalise on the city’s affordability and position as a prominent financial district. As such, even though completions will be strong this year and next, we …
5th October 2022
The low level of inflation in Switzerland compared to the euro-zone mainly reflects smaller contributions from energy and food. But core inflation is lower too, helped by the exchange rate and structural factors. Accordingly, the SNB won’t need to have …
If interest rates rise from 2.25% to 5.00%, as we now expect, we think the economy will suffer a deeper recession involving a 2% peak-to-trough fall in real GDP. That may result in the unemployment rate rising from 3.6% in July to 5.5% and may …
Continued worries about inflation mean the central bank (BoK) in Korea still has further work to do, and we are sticking with our view that the BoK will raise interest rates by at least 50bp between now and the end of the year. But with inflation likely …
The Reserve Bank of New Zealand hiked the overnight cash rate by 50bp to 3.5% as widely anticipated and the hawkish tone of the statement is consistent with our forecast that rates will peak at 4.5% by mid-2023. However, that aggressive tightening will …
An upward revision to our 10-year Treasury yield forecast and a widening in spreads have led us to upgrade our mortgage rate forecasts. We now expect the 30-year fixed rate will stay close to 6.5% for the remainder of the year before falling to 5% by …
4th October 2022
The scale of the increase in mortgage rates means that a large rise in mortgage arrears and repossessions is probably unavoidable. But substantial capital buffers mean lenders will be able to absorb the resulting losses without causing lasting problems …
Falls in Paris Centre West vacancy are expected to support a further pick-up in prime office rents in the second half of the year. But this will be short-lived, with the deteriorating outlook for employment growth set to weigh on occupier demand and …
Looser-than-expected fiscal policy following the mini-Budget means we now expect Bank Rate and gilt yields to be higher. All else equal, that would push the spread between the 10-year yield and all-property equivalent yields to its lowest since the GFC. …
The Reserve Bank of Australia slowed the pace of monetary tightening by delivering a smaller 25bp rate hike to 2.60% this month, but we still expect rates to peak a touch higher than most anticipate. And the financial markets are now coming round to our …
The latest manufacturing PMIs suggest that global industry has already weakened significantly and is set to perform worse in the coming months as high inflation and rising interest rates take their toll. While higher commodity prices caused price …
3rd October 2022
What Lula could mean for Brazil’s financial markets Investors seem to have taken the prospect of a second Lula presidency positively so far, but we suspect returns from the country’s dollar bonds and equities will disappoint over the next couple of years. …
Industrial metals prices rose following the release of the latest survey data on China’s manufacturing sector. But the average of the headline PMIs continued to decline, as did the average of the forward-looking export order PMIs. This suggests to us, at …
30th September 2022
If the UK government’s “new era of fiscal policy” boosts GDP growth as planned, the UK’s long-term prospects will be much improved. But the action announced so far will not achieve this. It is even possible that, by denting the UK’s fiscal credibility, …
With no end in sight to China’s zero-COVID policy, the dearth of Chinese tourists visiting Europe will suppress a key revenue source for luxury retailers and poses a downside risk to our already-weak prime retail rental forecasts. And even though …
Central banks in Mexico and Colombia delivered further large interest rates hikes yesterday, of 75bp and 100bp respectively, and the backdrop of strong inflation pressures and tighter external financing conditions means that a bit more tightening lies …
The RBI hiked the repo rate by another 50bp (to 5.90%) today and the communications give a clear steer that the tightening cycle still has further to run. But with inflation set to slow, we think the central bank will now revert to hikes of 25bp …
With the winter fast approaching and concern about natural gas supply from Russia looming large, we reviewed the relationship between temperature and gas demand in the EU. The key point is that the temperature, whilst important, will be a weaker driver of …
We now expect lower supply of grains over the coming months as the Russia-Ukraine war continues to reduce Black Sea exports and extreme weather conditions mean global stocks have been drawn down. We have therefore revised up our end-year price forecasts, …
29th September 2022
