Despite their precipitous fall against the dollar this year and last, we think the euro, sterling, and most other European currencies will weaken further over the next twelve month as the economic slowdown and the terms of trade shock that is hitting the …
31st August 2022
Recession risks rising even as GDP rebounds Our composite tracking models suggest that the chances of a recession within the next year have risen markedly. That said, the immediate risks still appear to be low, with the boost to real incomes from the …
A revived Iran nuclear deal would quickly bring an additional 1mn bpd of crude oil production online, which would directly weigh on global oil prices. But the bigger impact would be to make it less likely that supply cuts from OPEC+ would be used to …
The Republican party is on track to regain control of at least the House in the upcoming midterms, though the recent narrowing in the polls means that is no longer the slam dunk it once appeared. There is a small but growing chance that Democrats retain …
30th August 2022
Japan is facing its largest terms of trade shock since the second oil crisis in the early-1980s. While we don’t expect Japan to follow other advanced economies into recession, we’re slashing our 2023 GDP growth forecast from 2.6% to a below-consensus …
While attention has understandably focused on Fed Chair Jerome Powell’s Jackson Hole speech made last Friday, there were also important interventions over the weekend by ECB policymakers. These suggest that the risks to our above-consensus forecasts for …
29th August 2022
While EM real effective exchange rates have held up better than their nominal exchange rates against the dollar since 2021, we think there are some economies where appreciations look stretched, and nominal exchange rates may need to adjust further. …
26th August 2022
The surge in natural gas prices is a key reason why we expect Italy to fall into recession soon. If Russia stopped exporting gas to Europe entirely, Italy would suffer more than most but less than Germany. Even before the latest surge this month, the …
A shift in implied real yield gaps between the US and some other developed markets (DMs) have underpinned the latest rise in the greenback. We think the ongoing energy crisis in Europe means that major European currencies, in particular, will remain …
25th August 2022
President Biden has finally unveiled a plan to forgive some student debt via executive order. But the accompanying announcement that the pandemic-era moratorium on student debt will definitely expire at the end of this year means that the changes …
The >10,000 word account of the ECB’s July meeting confirms that a large majority of policymakers favoured a 50bps rate hike and are focused more on their mandate to contain inflation than on trying to head off recession. We expect two further 50bp …
We expect the spread between the yields of 10-year German and Swiss government bonds to widen further over the remainder of this year. The spread between 10-year German and Swiss government bond yields has widened sharply this year , with the former …
Russia’s squeeze on the gas market helped it to generate $50bn (6% of GDP) in total gas exports in the first half of this year, 2-3 times more than normal. Russia’s balance of payments is in such a strong position that, if oil prices and oil exports …
The Bank of Korea today raised its main policy rate by 25bp (to 2.5%) and signaled further hikes in the months ahead. However, with the central bank becoming more concerned about economic growth and inflation set to drop back, we think the tightening …
The further widening of Chile’s current account deficit in Q2 combined with an increased reliance on portfolio inflows leave the Chilean peso vulnerable to a deterioration in investor risk appetite. We think the peso will remain under pressure and, as a …
24th August 2022
With the vast majority of mortgage borrowers protected by fixed rates, it is not a surprise that the early delinquency rate has risen only marginally since the start of the year. And our forecasts for real incomes to recover and the unemployment rate to …
One left-field option for alleviating Europe’s gas crisis that has been doing the rounds is the potential for asking Norway to discount the price of its gas exports. This Update looks at eight key questions on the topic. In short, an agreement would …
We expect the PBOC to follow its recent policy rate cuts with further easing over the months ahead. This informs our decision to lower our forecasts for China’s 10-year government bond yield. But we don’t think further rate cuts, of the scale we …
We have revised up our forecasts of the European natural gas price due to the scale of Russia’s supply cuts and the likelihood that these are permanent. Prices should ease back in 2023 as Europe imports more LNG and demand falls, but we think they will …
France’s low energy inflation rate relative to those of its neighbours reflects government policies that have limited the increase in retail prices even as wholesale prices have risen. This will contain the hit to household spending, but at a …
Soaring electricity and gas prices will help lift inflation above 3% by year-end. But with that boost unlikely to be sustained, the Bank of Japan won’t see a need to tighten monetary policy. The surge in food prices and the fading drag from last May’s …
If the slump in China’s property sector continues for much longer, Australia’s export revenue would take a hit as iron ore prices tumble. But there are good reasons to think that the impact on aggregate demand would be smaller than many anticipate . Our …
August’s flash PMIs suggest that activity has weakened considerably, and, at face value, suggest that both the US and euro-zone have fallen into recession. What’s more, the forward-looking components of the PMIs point to further falls in output ahead. The …
23rd August 2022
Angola’s elections on Wednesday may be more competitive than ever before, but the ruling party’s decades-long hold on power is unlikely to come to an end. Assuming President Lourenço secures another term, the economy will probably slip back to a …
Prime central London (PCL) house prices have underperformed even disappointing wider London trends over recent years. But the latest data have been more encouraging and with prime buyers less exposed to rising interest rates and the cost-of-living …
It’s clear in hindsight that the Bank of England kept monetary policy too loose for too long during the recovery from the pandemic. But that does not mean that the mandate given to it by the government requires change. In fact, making radical changes to …
For most major euro-zone countries the terms of trade shock from higher gas prices this year will be bigger than both the 1974 and 1979 oil shocks. How this plays out in the coming months depends on many factors and will vary between countries – but …
Bank Indonesia (BI) hiked interest rates by 25bp to 3.75% today, and the hawkish commentary from the press conference increases the risk that the Bank will tighten policy further this year. Today’s decision came as a surprise. Of the 27 analysts …
Recent national accounts data show that many of the major EMs experienced a difficult second quarter . Looking ahead, a combination of weaker global demand, high inflation and rising interest rates is set to weigh on the outlook over the coming months. …
22nd August 2022
The Bank of Israel stepped up its tightening cycle with a 75bp interest rate hike, to 2.00%, today as it became more concerned about the strength of inflation. Our previously-hawkish view for interest rates to reach 3.0% now looks timid and we think a …
Weakness in the US economy over the coming quarters is likely to result in softer (rather than a collapse in) demand for Mexico’s goods exports as supply constraints fade, but the recovery in the tourism sector will probably grind to a halt and capital …
Today’s reductions to both the one-year and five-year Loan Prime Rates (LPR) continue the PBOC’s efforts to support the faltering economy. We expect additional easing to follow in the coming months, but policymakers still appear reluctant to engineer a …
In addition to revealing that higher interest rates had barely affected household and corporate finances, national accounts data for Q1 suggested that, with the exception of households in a handful of medium-sized economies, private sectors are …
19th August 2022
Despite the broad-based rebound over the past month or so, we expect deteriorating risk sentiment to put renewed pressure on most emerging market (EM) currencies before long. This Update zeroes in on which EM currencies are most vulnerable to large falls. …
Despite its recent resurgence, we still expect the S&P 500 to fall over the remainder of this year. The S&P 500 has continued to add to its gains this month . It is now more than 15% above its mid-June trough, and has unwound more than half of the losses …
Materials and labour shortages are weighing on construction activity and, although those headwinds may ease over the rest of the year, tighter monetary policy is likely to cause activity to fall. The latest surveys are consistent with the sector …
Turkey’s central bank stepped up its fight against economic orthodoxy by cutting its one-week repo rate by 100bp, to 13.00%, despite the backdrop of inflation at 80% and an extremely poor external position. This latest move could prove to be the trigger …
18th August 2022
Following today’s decision by the Norges Bank to raise its policy rate by 50bp at the second consecutive meeting, we now expect the Bank to make it a hat-trick of 50bp hikes at the next meeting in September. With price pressures looking strong, further …
The central bank in the Philippines (BSP) today raised its policy rate by a further 50bps to 3.75%, and gave a strong indication that more rate hikes are likely over the coming months. That said, with inflation set to peak soon and headwinds to the …
China’s post-Omicron rebound has fizzled out and the prospects for near-term growth are poor. Virus outbreaks are happening with increasing frequency. The housing market remains in a downward spiral. And exports look set to drop back before long. To make …
We think the macroeconomic backdrop that we envisage is consistent with certain “defensive” sectors of the S&P 500 – utilities, healthcare and consumer staples – outperforming over the rest of this year. Notwithstanding its rebound over the past few …
17th August 2022
A mixed performance, with Poland getting the wrong headlines GDP in Hungary and Romania continued to expand strongly in Q2 by 1-2% q/q, but the Czech and Slovakian economies barely grew at all and there was a shocking 2.3% q/q contraction in Poland. …
The robust 1.5% q/q rise in Colombia’s GDP in Q2 suggests that the economy’s recovery will be among the strongest in the region this year. Strong growth, alongside upside inflation surprises and the fragile external position mean that the central bank’s …
The resignation of Central Bank of Egypt (CBE) Governor Tarek Amer points to a growing tension within policymaking circles on the best way to address the country’s external imbalances. We think the next governor will ultimately need to let the pound …
Aggregate EM inflation came in at its highest rate since 2008 last month, but there are signs that it is starting to stabilise and it should fall back in the coming months. For central banks in Emerging Europe and Latin America that have already hiked …
The RBNZ lifted the overnight cash rate by 50bp to 3% today as everyone had anticipated and signaled that it will deliver another 50bp hike in October. We now expect the Bank to hike rates to a peak of 4% instead of our previous forecast of 3.5%, but we …
The latest figures suggest that Build to Rent (BTR) investment has continued to expand rapidly. Despite this trend, which predates COVID-19, the sector remains under-developed by international standards. But with plenty of opportunities for investors, we …
16th August 2022
An increase in the permanent migration programme will help to alleviate labour shortages. But the rapid tightening of the labour market in recent months has been driven by strong labour demand rather than a shortfall in supply. The upshot is that the RBA …
Ruto wins, but political risks remain acute After nearly a week since voters went to the ballot box, William Ruto was finally announced President-elect in Kenya, but investors’ roller-coaster ride will probably continue over the coming days and weeks with …
15th August 2022
We agree with PM Modi’s assertion in his Independence Day speech over the weekend that boosting female participation in the labour force could have a major positive impact on the economy, but in truth the government’s record in this area is poor. Looking …
