After it was slashed in the wake of the pandemic, capital expenditure by US oil producers is now rising. Given oil prices will probably remain high for a while, we suspect the recovery has longer to run. This could give a lift to US oil production this …
18th February 2022
The centrepiece of Singapore’s budget today was confirmation that the Goods and Service Tax will rise next year and again in 2024. The hike is intended to help pay for an increase in healthcare spending as the population ages over coming years. The …
With tensions between Russia and Ukraine continuing, the risk of a conflict with far-reaching economic consequences remains uncomfortably high. This Update considers what the impact on global financial markets has been so far, and the potential …
Working from home has increased the demand for larger properties, and in response the median size of new homes started at the end of last year was the largest since the start of 2019. Supporting that move to larger properties has been a shift to building …
The Omicron hit to activity has been small compared to past waves and should prove short-lived now that cases are falling in all regions. In fact, high-frequency data suggest that activity has already turned a corner. Daily deaths are still rising in EMs, …
With FX debt burdens relatively low in most major EMs, the risk of debt crises triggered by rising US interest rates and a stronger dollar looks limited. Vulnerabilities are generally limited to frontier markets and the usual suspects like Turkey and …
French President Macron is on course to win re-election in April by a comfortable margin, and is likely to push for a lower tax burden and pension reform in his second term. His main rival Marine Le Pen no longer proposes a “Frexit”, but a victory for her …
After a series of aggressive interest rate hikes, tightening cycles in parts of Emerging Europe and Latin America may now be nearing an end. But inflation concerns mean that policy rates will remain above their neutral level there for some time. In …
17th February 2022
We think that the gap between the yields of 10-year German and Swiss government bonds will re-emerge over the next couple of years as the ECB tightens policy more quickly than the SNB. Prior to the pandemic, there was a spread between the yield of the …
The further rise in inflation to close to 50% y/y in January was clearly not enough to sway Turkey’s central bank (and crucially, President Erdogan) to shift back to orthodoxy as the one-week repo rate was left at 14.00% at today’s MPC meeting. We expect …
At the Beijing Winter Olympics, China is once again displaying its sporting prowess. But the international reception has been notably icier than that for the 2008 Summer Games, highlighting that China’s continued economic rise is being accompanied by a …
The central bank in the Philippines (BSP) left its main policy rate unchanged at 2.0% today and we expect rates to be left on hold throughout 2022. In contrast, the consensus is expecting 50bps of hikes. Today’s decision came as no surprise and was …
While the simmering tensions over Ukraine could keep euro-zone inflation higher for longer than most expect, we think that it is unlikely to put the ECB off plans to start normalising policy this year – provided that there is neither a drastic military …
16th February 2022
In this Update , we discuss the possible ramifications for the global oil and natural gas markets of a Russian invasion of Ukraine. Much would depend on whether Western sanctions are placed on Russian energy companies and/or Russia decides to withhold …
The rest of Emerging Europe is particularly exposed if a further escalation of Russia-Ukraine tensions lead to higher global energy prices and disruptions to commodity exports, with Bulgaria and the Baltic States most at risk from possible interruptions …
Business investment has been much weaker in Canada than the US since the pandemic, which helps to explain why productivity growth has lagged. There are reasons to be optimistic about the next couple of years, but we are doubtful of the Bank of Canada’s …
Persistently high oil prices would bode ill for current account positions in much of Latin America, adding to the existing vulnerabilities in Chile. It would also keep inflation elevated, leading to more aggressive monetary tightening than we currently …
Ukraine’s economy as a whole is in a better position to weather significant capital flight and sharp falls in the hryvnia than at any point in the past decade. But even so, there are key pockets of vulnerability that could be exposed if there is a major …
The tightening of labour market conditions in the euro-zone is likely to help push hourly wage growth up over the next couple of years to more than 3% y/y by 2023. This will serve to strengthen the calls from those pushing for the ECB to begin …
Despite their strong start to 2022, we think that emerging market (EM) commodity currencies will struggle over the next couple of years as commodity prices fall back from their current high levels. That said, we doubt that they will suffer as much as …
A Russian invasion of Ukraine would not make a Chinese attack on Taiwan more likely and would not undermine the willingness or ability of Taiwan’s allies to come to its defence. The argument that hostilities between Russia and Ukraine would heighten the …
15th February 2022
The recent agreement between the US and Japan will allow the majority of Japan’s steel exports to enter the US without levies. We expect this increased supply will combine with slower growth in demand to lead to further falls in US steel prices through …
Net capital outflows from emerging markets have intensified over the past month as growing tensions between Ukraine and Russia and the prospect of tighter global monetary policy have caused risk appetite to sour. The external environment will remain …
Mortgage lending in Saudi Arabia has ramped up sharply in recent years as the government has tried to push up homeownership among Saudi nationals. This has not provided much of a boost to property prices and there are reasons to think that they will …
Tensions between Russia and the West have intensified and rattled global financial markets. Amidst the uncertain situation, this Update brings together some of the key implications of the crisis for Russia, Ukraine and the rest of Emerging Europe . (See …
Our new, higher interest rate forecast suggests that mortgage rates will climb to an eight-year high in 2023, making house prices look expensive by historical standards. But the overvaluation won’t be as extreme as it was on the eve of the financial …
Quantitative tightening (QT), namely the shrinking of central banks’ balance sheets, is likely to play an active role alongside rising interest rates in the tightening of monetary policy over the coming months. However, central banks will have to play it …
The People’s Bank (PBOC) has refrained from further policy easing for the time being. It left rates unchanged today when injecting liquidity via its reverse repo operations and medium-term lending facility (MLF). But the central bank’s latest monetary …
Our forecasts suggest that prime all-property rental growth across the main euro-zone markets is likely to keep pace with inflation in the coming years. However, this is more of a reflection of expected demand and supply conditions, than an indication …
14th February 2022
The sharp drop in the fertility rate during the pandemic has already started to reverse. And even if it is sustained, the government will be able to offset a slower natural increase with higher net migration. The upshot is Australia will remain one of the …
We think that yields of 10-year emerging market (EM) local-currency (LC) government bonds may, in general, increase by more in Asia than in other regions by end-2023, in contrast with the pattern over the past year. The main exception is in China, where …
11th February 2022
Although last week’s hawkish surprises from the ECB and the Bank of England weaken the case for further US dollar appreciation against the euro, sterling, and other European currencies, we are sticking to our view that the greenback will strengthen a bit …
After a record-breaking 2021, survey evidence points to a strong start to the year for pan-European (excluding UK) investment volumes. With pent-up demand mostly exhausted, we expect transactions to slow in the second half of the year. Nonetheless that …
We suspect that the pattern of returns from commodities and US equities over the next few years will more closely resemble that in 2014-15 – positive from the US stock market, negative from commodities – than the pattern during the 1970s – which was the …
We continue to expect 10-year government bond yields across developed markets (DMs) to rise over the next few years. But given some upward revisions to our policy rate forecasts for the euro-zone, Australia and the UK we now think yields there will be …
Russia’s central bank (CBR) maintained the pace of its tightening cycle today with another 100bp interest rate hike, to 9.50%, and the hawkish communications suggest that the cycle will not stop until the CBR has confidence that inflation has peaked. This …
South Africa’s President Cyril Ramaphosa vowed to press ahead with his signature reform drive to boost the economy in Thursday’s State of the Nation Address (SONA), but most initiatives will take time to bear fruit. In the meantime, the president appeared …
Growth in LNG exports, particularly from the US, will put downward pressure on natural gas prices in Asia and Europe. However, it will not be enough to return prices to pre-pandemic levels as stocks are low and demand growth is likely to remain strong, …
Our forecasts for commodity prices this year are subject to greater uncertainty than usual. While we expect growth in energy demand to slow, it may still be the case that supply remains constrained. As a result, energy prices may stay high for longer, …
The second successive 50bp hike by Mexico’s central bank (to 6.00%), in another 4-1 split on the Board, suggests that it is maintaining its hawkish stance under the new Governor Victoria Rodríguez. And with inflation set to remain well above target in the …
The exceptionally strong rebound in commercial property returns has been clear from the middle of last year. While this came earlier than most expected, we think it reflected special conditions and won’t last. Despite increased uncertainty from the …
We already expected that rental growth would surge to a decade-high this year. But the strength of leading indicators and the low level of rents relative to income by historical standards suggest rental growth will exceed even that forecast and remain …
While there are limits to the lessons we can draw from the past, Europe’s experiences since World War Two provide some guidance as to the outlook for wages and inflation. They suggest that the recent surge in inflation will not lead to markedly higher …
10th February 2022
Although a major drop in US equities poses a key downside risk to our view that the US dollar will rise, we doubt the slight underperformance of US equities relative to global equities that we forecast would prevent the greenback from appreciating against …
The upward revision to household employment and the labour force imply that the labour market recovery has been a little stronger than we previously believed, but measures of slack suggest that labour shortages have been stabilising in recent months and …
Fixed investment in Brazil rose at one of its fastest rates in the last 50 years in 2021 which, while a positive development, was driven by factors that are unlikely to be sustained. Fixed investment will probably fall back significantly this year, …
China made none of the additional purchases it committed to under the Phase One trade deal. The Biden administration isn’t pleased but doesn’t have good options to force China to do more. And China has less incentive to offer concessions than it did a …
We believe the link between real estate cashflows and inflation to be overplayed, a view that is backed up by the evidence of the last 44 years. But there are exceptions. One of which is low vacancy rates, which support strong NOI growth, as we expect in …
The average home purchase mortgage size has ballooned over the past couple of years, but a concurrent rise in down payments will protect lenders from all but the most severe of house price shocks. Looking ahead, with the household saving ratio dropping …
We think upcoming “quantitative tightening” by the Fed will contribute to further increases in the yields of long-dated Treasuries this year and next. Investors have ramped up their expectations for Fed rate hikes lately, pushing Treasury yields to …
