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 …
10th February 2022
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 …
One of our key calls for 2022 (see here ) is that mid- and large-cap equities in the US will generally underperform those in other developed markets (DMs), and only fare about as well on average as those in emerging markets (EMs), as the Fed raises rates. …
While the Riksbank largely stuck to its dovish stance this morning, the fact that three of the six members of the Executive Board entered reservations and favoured reducing the size of the balance sheet this year leaves the direction of policy on a knife …
Bank Indonesia (BI) left interest rates unchanged at 3.5% at its meeting today, and the weakness of inflation means the tightening cycle is likely to be very gradual. The decision to leave rates on hold came as little surprise and was predicted by all 31 …
The recent hawkish turn by many major central banks did not faze the RBI today, which continued to project a dovish tone while keeping policy settings unchanged. But inflation risks are building and we expect them to force the MPC’s hand before long. We …
Continued strength in underlying inflation and activity will prompt the Reserve Bank of Australia to start hiking rates in June. And we now expect the Bank to lift the cash rate to 1.75% by August next year. Further evidence that the Australian economy is …
Higher oil prices would not provide as large a boost to the Canadian economy as in the past but, at a time when GDP is already set to rise above potential and inflation is well above target, they still raise the chance that the Bank of Canada could …
9th February 2022
We now think that Bank Rate will rise from 0.50% currently to 1.25% sooner than we previously thought. What’s more, we now expect three more 25 basis point (bps) rate rises in 2023, resulting in rates ending next year at 2.00%. That compares to the …
Any policy tightening by the ECB in 2022-23 will probably be too limited to cause major problems in the bond market. But if interest rates rise much further than we anticipate, that could trigger renewed bond market turmoil – which in turn would …
China’s refined metals output mostly rose in 2021, despite power rationing in Q4. We expect output growth to continue in 2022, which is a factor underpinning our view that metals prices will fall . Aluminium output in China grew by over 4% in 2021, as new …
Our base case is that monetary tightening by the ECB results in a manageable rise in Italy’s government bond yields. We think it would take 10-year yields rising to 5% or more to bring debt sustainability into question. However, there is no guarantee that …
The National Bank of Romania (NBR) accelerated its tightening cycle today with a 50bp hike to its key policy rate (to 2.50%) and, with inflation firmly above the central bank’s target, we think this cycle has plenty more room to run. We now expect the …
Timely activity data suggest that, over Q4 as a whole, Nigeria’s economy came close to a standstill. The weak economic backdrop is likely to prevent the CBN from raising interest rates in the coming months. GDP growth eased in Q3 of last year, to 4.0% …
With economic activity still depressed by recurrent virus waves, the sharp slowdown in immigration to Japan has yet to put much upwards pressure on wages. However, looking ahead we think some sectors could be hit by a rise in labour costs if the border …
The Bank of Thailand (BoT) left its policy rate unchanged today at 0.5%, and despite the recent rebound in inflation, we expect interest rates will remain on hold for some time to come. The decision was unanimous, and the outcome was correctly predicted …
The National Bank of Poland (NBP) raised its policy rate by another 50bp, to 2.75%, at today’s meeting and, while there was little change in language in the statement, we think a backdrop of strong wage and price pressures will prompt further hikes to …
8th February 2022
Our downbeat view that most commodity prices will fall back by year-end is largely negative for economies across Sub-Saharan Africa, with Zambia and Angola likely to be hardest hit, although some net oil importers are likely to gain from softening oil …
If oil prices were to remain at their elevated levels, they could push current account and budget balances into surplus in many of the EM producers. It would also ease any concerns about dollar pegs in the Gulf, although we think the currencies of Angola …
Inflation is a growing concern for policymakers in South Asia and means interest rates are likely to rise further this year. Elsewhere in Asia, inflation remains low and is likely to fall back over the coming months, supporting our view that policymakers …
Soaring input prices have kept profit margins of manufacturers below their pre-virus peak even as those of services firms have hit record highs. However, manufacturers will catch up before long. As we noted in a recent Weekly , the net profit margins of …
6th February 2022
We doubt the S&P 500 will get much of a boost from upward revisions to earnings forecasts between now and the end of 2022, which is one reason why we expect the index to make only small gains this year. What’s more, notwithstanding their recent struggles, …
4th February 2022
A Russian invasion of Ukraine or severe ratcheting up of sanctions would add as much as 2%-pts to inflation in DMs, particularly in Europe. Given the inflationary backdrop and hawkish signals from central banks, monetary policy could be tightened more …
Financial conditions have continued to tighten in Latin America and Emerging Europe and will likely remain restrictive throughout the year, weighing on activity in both regions. Meanwhile, although they have tightened too, conditions in Asia generally …
We expect most emerging market (EM) currencies to struggle, despite their strong start to 2022, as commodity prices fall and the Fed seeks to tighten financial conditions. That said, we think that most EM currencies will hold up a bit better than last …
Today’s appointment of Jens Stoltenberg as the new Governor of the Norges Bank is a slap in the face for the bus driver, plumber, and baker who had applied for the job, as well as the two thirds of Norwegians that favoured Ida Wolden Bache to succeed …
The recovery in Dublin offices has lagged the broader economic upturn. While demand is expected to improve in 2022, with a full supply pipeline, it is likely that vacancy will stay at relatively high levels over the next two years and rental growth will …
Most of the surprise in January’s inflation data came from energy inflation. But core inflation was also unexpectedly strong. With underlying price pressures continuing to build, there is a good chance that the ECB raises its medium-term inflation …
3rd February 2022
We think that elevated oil prices will help office-based employment in Houston to recover further in the coming months, but the shift to remote working will limit the associated boost to office demand. Looking further ahead, declining oil prices and high …
After seeing strong gains over most of 2021, household formation stalled in the final quarter. A lack of homes for sale and rent, and the soaring cost of both tenures, is constraining household formation. To the extent that it is affordability that is …
The Czech National Bank (CNB) slowed the pace of its tightening cycle for the second consecutive month today and the accompanying communications were less hawkish than expected and suggest that there is little appetite for much more significant …
While the ECB did not change its policy settings today, President Lagarde more than made up for it in the press conference. We now think the ECB will decide in March to taper its asset purchases faster than previously indicated, and are pencilling in 50bp …
The Central Bank of Egypt (CBE) kept interest rates unchanged at Thursday’s MPC meeting amid stronger price pressures and, if we’re right in expecting the authorities to let the pound weaken gradually this year at the same time that US Federal Reserve …
One challenge for central banks as they consider reducing the size of their balances sheets is that, if they sell assets bought during the pandemic, they will likely face a financial loss. This is less of an issue for the Bank of Canada because it has an …
While the decisions by the Bank of England to hike interest rates from 0.25% to 0.50% and to start reversing quantitative easing (QE) were both as expected, with four MPC members wanting to raise rates to 0.75% and all members deciding to sell the …
While the recent improvement in world trade is encouraging for industrial demand in the major port markets, we don’t expect an acceleration in rental growth this year. Supply bottlenecks will still take time to unwind and the low availability of space and …
The statement accompanying the Brazilian central bank meeting yesterday, at which the Selic rate was hiked by 150bp to 10.75%, made clear that policymakers will slow the pace of tightening from here. But with inflation worries still prominent, we think …
Retirements still explain around half of the shortfall in labour force participation since the pandemic. While the rest of the decline reflects a broad mix of factors, the longer those workers remain out of the workforce, the more likely the fall in …
2nd February 2022
The markets are right to be sceptical of claims that the Fed could begin its tightening cycle with a “shock-and-awe” 50bp interest rate hike next month. At a time when the yield curve is already unusually flat, an aggressive start to the tightening cycle …
After slipping into a technical recession at the back end of 2021, the latest surveys suggest that Mexico’s economy remains in a weak spot at the start of 2022 owing to Omicron-related disruption. Preliminary Mexican Q4 GDP data released this week showed …
Egypt’s current account deficit has widened to alarming levels over the past couple of years which partly reflects the impact of the pandemic but it is also a symptom of an increasingly overvalued currency. We think policymakers will let the pound …
We envisage an end to the markedly better performance of TIPS than Treasuries since inflation compensation rebounded from an initial, liquidity-distorted, slump at the start of the pandemic. But this view rests on an assumption that inflation will fall …
The upcoming election in Uttar Pradesh (UP) – India’s most populous state and one of its most politically important – is already having an impact on economic policy as contentious reforms have been put on the back burner over recent months. A poor …
With oil prices at current levels, nearly all of the Gulf economies are running twin budget and current account surpluses. We think that governments are more likely to save rather than spend this windfall, limiting the impact on the region's non-oil …
1st February 2022
January’s PMIs suggest that, while industry in China, Brazil and Mexico is struggling, manufacturers elsewhere in the emerging world have started 2022 on a solid footing, despite the surge in virus cases. The surveys provided some signs that supply …
While there is still time for Omicron waves to hit global supply chains, the manufacturing PMIs suggest that there has been limited disruption for now, especially outside China and the US. That said, product shortages and price pressures remained acute in …
The Q4 GDP data released over the past week underline the fact that the two largest developed markets – the US and euro-zone – have so far experienced very different crises and recoveries. These differences help to explain why economic growth in the …
Finance Minister Nirmala Sitharaman delivered a more growth-friendly Union Budget than most had expected today. But rather than unveiling measures to shore up support ahead of state elections, new spending plans are largely focused on ramping up capital …
The RBA today ended its bond purchases, revised up its inflation forecasts and no longer signalled that wage growth needs to be “materially higher” to meet its inflation target on a sustained basis. We expect the first rate hike in August . The Bank’s …
