The escalation of the conflict in Ukraine has increased the risks posed to the global economy, but we still expect the broader effects to be relatively contained given limited trade and financial exposures to Russia. If more severe adverse consequences …
28th February 2022
Restrictions on Russian trade will probably lead to lower nickel supply and keep prices elevated. As a result, we have raised our nickel price forecast, despite a relatively subdued outlook for demand . The price of nickel has rallied by 30% since …
The Russian invasion of Ukraine has added significant new uncertainty for investors. We expect Moscow property will take a substantial hit, but the impact on the wider European property market will be limited. We have outlined our initial thoughts about …
As it stands at the moment, we still think that the Russian/Ukraine conflict is more likely to boost inflation in the UK by more than it reduces GDP growth and that the Bank of England will continue to raise interest rates at the next few policy meetings. …
The ratcheting up of Western sanctions over the weekend has left Russian banks on the edge of crisis. They face both large deposit withdrawals and the prospect of a rise in non-performing loans, which are likely to cause credit conditions to tighten and …
This briefing note is intended to bring clients up to speed with developments over the weekend in the conflict in Ukraine. On the military front, while events remain in flux, the Russian advance has proceeded more slowly than had been anticipated . Kyiv, …
Amid all the volatility in global markets during the Russia-Ukraine conflict so far, we think there are several key lessons we can draw from the relative performance of bonds, equities and currencies that will help to inform how they might evolve from …
25th February 2022
Our estimates suggest that risk premiums are currently adding around 40% to commodity prices. This suggests that commodity prices could fall a long way whenever concerns over the Russia-Ukraine conflict begin to ease, though clearly this is unlikely to …
Much has been made of UK property’s openness to Russian money following the invasion of Ukraine. But since the depreciation of the Russian ruble in 2014, Russians have become far less important to demand. As a result, we think the effects on UK property …
The latest Western sanctions on Russia will hit its economy hard through tighter financial conditions and reduced trade, and might plausibly hit GDP by 1-2%-pts. But sanctions stopped short of the more damaging scenario – both for Russia and Europe – in …
Today’s grave escalation of the Russia/Ukraine conflict threatens to keep CPI inflation in the UK even further above the 2% target this year and reduce households’ real incomes by even more. The conflict probably won’t prevent the Bank of England raising …
24th February 2022
China’s leadership is trying to straddle a geopolitical divide. Russia is an ally, but being seen to take its side would hasten China’s decoupling from the West. Most likely, China will support Russia financially and through trade as much as any Western …
The escalation of the Russia-Ukraine conflict has increased uncertainty about the economic outlook for the euro-zone. While things are changing rapidly, at this stage we think the main effects will be to push up inflation but to cause the ECB to tread …
The latest twist in the Russia-Ukraine crisis is likely to keep commodity prices elevated over the coming weeks and months. And if the situation spirals into a more serious and wide-ranging conflict between Russia and the West, commodity prices could rise …
This Update answers eight key questions for economies and markets in light of the escalation in the Ukraine conflict overnight. All clients are invited to a Drop-In at 14.00 GMT/09.00 EST when our panel of senior economists will discuss these issues and …
A large upwards revision to the Bank of Korea’s (BoK) inflation forecast as it left rates on hold today signals that more tightening is just around the corner. We still expect three more 25bp hikes in 2022, taking the policy rate to 2.00%. Today’s …
Worries about India’s public debt trajectory have been growing since the Finance Ministry announced an accommodative Budget for FY22/23. But under reasonable assumptions for nominal GDP and interest rates, the Finance Ministry would not need to keep …
Egypt’s government looks set to continue its commitment to tight fiscal policy and bringing down the public debt ratio. However, we hold concerns over the increasing levels of foreign currency debt that will be vulnerable if, as we expect, the pound …
23rd February 2022
In an extreme scenario, the impact of the Ukraine crisis on energy prices could add up to two percentage points to the peak in headline euro-zone inflation this year, and one-and-a-half percentage points over the year as a whole. The impact on ECB policy …
The strong finances of state & local governments suggest that they will continue to increase spending at a rapid pace this year. But that won’t come close to matching the huge economic boost from the $2.5trn federal fiscal stimulus last year, which has …
Today’s budget showed that South Africa’s public finances are in a better-than-expected shape but the path to stabilise the debt ratio remains narrow. Mounting pressures to provide more fiscal support mean that we think policymakers will increasingly …
While the mood seems to have improved a little at the time of writing, the S&P 500 closed yesterday more than 10% lower than its recent peak at the start of the year, satisfying the criteria for a stock market correction for the first time since 2020. The …
Our view that the US stock market will outperform Treasuries again this year is being called into question by a flattening of the yield curve. Nonetheless, we are not anticipating that it will invert, which has often been the precursor to a recession and …
A spike in energy prices caused by significant disruption to Russian exports would lift Japanese inflation to 2% from April until the end of this year. However, the BoJ wouldn’t respond by lifting its policy rate as it wouldn’t be able to argue that …
The expansionary budget unveiled today will provide some support to Hong Kong’s economy this year. But this is unlikely to fully offset the drag from Fed rate hikes, let alone the massive hit to economic activity from a citywide lockdown, which looks …
The RBNZ sounded hawkish when it lifted rates today suggesting the OCR will rise further than we had previously anticipated. But a more aggressive hiking cycle will be an even bigger headwind to the economy next year, so we still think the RBNZ will …
It is not in the economic interests of either Russia or the West to use trade in energy as a weapon against each other, but that is not to say it won’t happen. If energy flows were disrupted, we think oil prices could settle at around $120-140 per barrel, …
22nd February 2022
The Russia-Ukraine crisis poses a challenge for central banks in advanced economies as they weigh the upside risks to inflation against the downside risks to activity. For now, we suspect that the two are finely balanced and have not changed our forecasts …
Inflation differentials across the euro-zone are unusually wide, in large part due to differences in energy inflation. But we don’t expect this to last. In the coming years, we think that inflation will be higher in the core countries than in the …
February’s Flash PMIs support our earlier assertion that activity in developed economies would recover quickly from disruption related to Omicron. There is also tentative evidence that supply shortages are beginning to ease, but this has done very little …
Russia’s decision to send troops to eastern Ukraine has prompted US sanctions on the two breakaway Ukrainian regions, and Western governments are lining up further measures that would hit Russia itself. But there is a wide range of sanctions that could be …
The economic and market consequences of a war between Russia and Ukraine will depend on the severity of the conflict, and the response of the West. But in most cases the economic impact on countries beyond Russia and Ukraine is likely to be limited. The …
If the Bank of Japan shortened the duration of its yield target, the impact on economic activity and inflation would probably be small but it could improve the long-term health of insurers and pension funds. It’s not clear though what could prompt such a …
The strength of the latest activity, labour market and inflation data prompted a shift in guidance from the Bank of Israel today in which it said that it may start a tightening cycle in the coming months. We think the firing gun will be started in April …
21st February 2022
Oil production in Venezuela has been showing signs of life, and there is probably scope for further gains in the near term. But it would require a lifting of sanctions and significant investment over many years to bring production back to levels seen a …
Taiwan new export orders picked up for a third straight month in January. While we expect this trend to go into reverse soon, a large backlog of unmet orders will keep the region’s exporters busy throughout most of this year. Taiwan’s export orders …
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 …