We now think that, rather than remaining broadly stable, the spreads of euro-zone “peripheral” bonds will widen somewhat over the next two years as the ECB gradually normalises monetary policy. That said, we still expect spreads to remain low by …
17th November 2021
Fiscal balances have generally improved across Latin America this year (barring Chile and Colombia) but we think that governments in most major economies will struggle to implement the substantial austerity needed to stabilise public debt-to-GDP ratios. …
There has been no let up for the Turkish lira today and all eyes are turning to the central bank’s interest rate decision tomorrow. Policymakers’ increased tolerance to falls in the lira as well as pressure from President Erdogan mean that an interest …
Rising virus numbers have caused containment measures to be reimposed in Emerging Europe and now seem to be harming consumer activity in the euro-zone. There is a strong risk of further restrictions over the winter in several economies, but in most cases …
Net capital outflows from EMs have persisted in recent weeks and, looking ahead, a further rise in US Treasury yields could lead to larger outflows over the coming months. The good news is that – Turkey aside – vulnerabilities to outflows in most major …
16th November 2021
COP26 has progressed efforts to fight climate change, but there is still a significant gap between pledges and actual policies. Unless action ramps up this decade, countries may face a choice between accepting the costs of greater global warming or a …
Investors were initially disappointed following the decision by Hungary’s central bank (MNB) to raise its base rate by only 30bp (to 2.10%) today, but the hawkish post-meeting communications and a pledge to step up the pace of tightening by using other …
The Turkish lira has remained under significant pressure at the start of this week and there is a growing risk that the central bank’s continued obedience to pressure from President Erdogan for interest rate cuts results in sharp and disorderly falls in …
The current bout of high inflation will put much less direct upward pressure on negotiated wages in the euro-zone than in previous such episodes. This is because far fewer agreements now contain inflation-linked clauses and those which do are typically …
Although the climate deal struck at COP26 appears to have fallen short on many counts, it does at least reaffirm our view that demand for traditional energy commodities will struggle in the long run . Following two weeks of negotiations, the ‘Glasgow …
Copper prices have soared since mid-2020 as demand raced ahead of supply. However, a strong supply response is now underway which, in tandem with cooling copper demand, will weigh on prices into 2022. The cash price of LME copper surged close to $11,300 …
15th November 2021
Low mortgage rates, strong earnings growth, plenty of cash savings and a surge in home equity have pushed the early mortgage delinquency rate to a record low this year. Most of those factors will continue to support borrowers over the next couple of …
By next year, Brazil’s public sector interest payments could be almost twice as large (at ~8% of GDP) as they were in 2020, making the challenge of stabilising the public debt-to-GDP ratio all the more difficult. A lot of the focus of the implications of …
The IPF Consensus forecasts for euro-zone prime office rental growth in 2021 have been revised up, consistent with the more positive recent data. However, expectations were revised down slightly for the next couple of years. Even so, we still have a more …
The September Job Opening and Labour Turnover survey shows labour market conditions are far tighter than the 4.6% unemployment rate suggests, and points to continued rapid wage growth. With productivity stagnant, that will add to mounting cyclical price …
12th November 2021
Even though the S&P 500 has risen by almost another 25% or so this year, we are still not persuaded that the US stock market is in a bubble that is about to burst. Admittedly, the case for the existence of a bubble may have strengthened since around the …
In contrast with our expectations for sovereign bond yields to rise around the rest of the world, we think that the 10-year Chinese government bond (CGB) yield will decline over the next couple of years as the country’s central bank loosens monetary …
We think that the recent pick-up in bond market volatility will persist and that volatility in currency markets will also rise further as uncertainty around the economic outlook and monetary policy remains high. Bond market volatility across most …
We think expectations for corporate earnings in the US and most of Europe are unlikely to improve much further. One exception is the UK, where earnings expectations look a bit less upbeat . Back in July, we showed that expectations for corporate earnings …
We think that MSCI’s Emerging Markets (EM) Latin America Index will continue to underperform its EM EMEA Index over the next couple of years, albeit not to the same extent as it has in 2021 so far. In recent decades, MSCI’s equity indices for Latin …
The Mexican central bank’s 25bp rate hike, to 5.00%, and the accompanying statement showed little sign that policymakers are likely to follow their peers in Latin America by upping the pace of tightening in response to strong inflation pressures. The …
Anticipation of higher interest rates has pushed up fixed mortgage rates. And with scope for banks to absorb higher costs in their margins now exhausted, future changes in interest rate expectations will be fully passed through to mortgage rates. But as …
A significant share of the difference in headline inflation between Emerging Asia and other emerging regions has been driven by food inflation, which appears to be related to domestic conditions more than anything else. In Emerging Europe and Latin …
The jump in headline inflation in Spain in October was almost entirely down to the electricity component. We do not expect this bout of higher inflation to last, but in the meantime, consumers are facing a squeeze on real incomes that risks leaving …
We are doubtful that a significant share of households’ “excess” savings will be spent. Even if we are wrong, there are several other downside risks to the consensus forecasts for consumption growth, including the recent removal of financial aid to …
11th November 2021
The phasing out of crisis support and strength of tax revenues have boosted Israel’s public finances and the conservative stance of last week’s budget will help to narrow the deficit towards 3% of GDP in 2022, although we don’t think this will derail the …
Today’s Medium Term Budget Policy Statement (MTBPS) in South Africa signalled that the government is broadly sticking with its fiscal consolidation plans. But with growing pressures to ramp up social support just one of the many risks facing the public …
With speculation rising that the UK will trigger Article 16 of the Northern Ireland Protocol, the big risk is that relations between the UK and the EU sour to such an extent that parts of the whole UK/EU Brexit deal unravel. Even if things do not …
While inflation will stay well above target in both the US and Germany in the months ahead, the detail of the latest inflation prints seems to confirm that price pressures are likely to be much more persistent in the US. Crucially, rents are becoming a …
The pandemic has triggered a three-fold increase in the use of mobile payments in India. It is unclear whether there has been a corresponding broadening in the number of people using cashless payment. Demonetisation, five years ago this week, also …
A healthy occupier backdrop and a shortage of supply should allow prime industrial rents in the Netherlands to continue to grow at a steady pace over the coming years. As a result, after years of underperformance, our forecasts leave Dutch rental growth …
The latest real estate data came in stronger than expected. But while there have been encouraging developments, particularly in the retail sector, we think this signals a short-term boost to prospects rather than a permanent improvement. The further …
The ruling Frente de Todos (FdT) coalition is likely to lose some of its power in congress in Argentina’s midterm elections on Sunday. Policymaking could subsequently go in one of two ways. Our baseline scenario is that, with electoral concerns out of the …
10th November 2021
The Bank of Thailand (BoT) left interest rates on hold today at 0.5%, and the poor outlook for the economy means rates are likely to remain low for some considerable time. Today’s decision was unanimous, and the outcome was correctly predicted by all 21 …
While external risks have subsided across much of Sub-Saharan Africa in recent quarters, pockets of vulnerability remain. External (and, as a result, debt) vulnerabilities look most acute in Ethiopia. Since the height of the pandemic, when external …
9th November 2021
We expect the yen to weaken a bit more against the US dollar as we think that government bond yields in the US will resume their rise before long. Since the start of October, the yen has been the worst performer among G10 currencies . (See Chart 1.) The …
The divergence between the quarterly and the monthly measures of GDP have left it unclear whether the economy is still languishing at about 2.0% below its pre-pandemic level or if it is nearing that milestone. But regardless of how close the economy is to …
The sharp tightening of monetary policy in the region will strengthen the preference for savings, dampen lending growth and raise debt servicing costs next year. It is plausible to think that higher interest rates could trim 0.5-0.8%-pts off GDP growth …
With household saving rates still elevated in most developed economies, “excess savings” have continued to rise. If people were to run down these savings, this would breathe new life into consumer recoveries. Households’ saving rates (showing the …
Rising interest rates will result in the RBA making further losses in the years ahead. The Bank’s existing reserves should be enough to absorb those losses in a benign scenario, but the Bank will stop paying a dividend. And in a worst-case scenario, the …
The faster-than-average recovery in financial sector employment in the Miami metro owes much to new office openings by banking and finance firms in the last 18 months. This has made Miami one of the best-performing office markets since the end of 2019 and …
8th November 2021
China’s imports of iron ore and copper rose in October compared to a month prior (in seasonally adjusted terms). But we doubt this is the start of a renewed upswing, not least as indicators of demand have deteriorated and volumes were still down sharply …
The latest data show that conditions in the German retail sector are improving. Nevertheless, we think vacancy will be slow to reverse as pandemic shifts lead to weakness in in-store demand, particularly in Frankfurt and Munich. Following the pandemic …
There is growing evidence that global goods shortages are weighing on euro-zone activity. We expect this to contribute to a marked slowdown in growth in Q4, and the outlook for early 2022 is no better. What’s more, it looks likely that the shortage-driven …
5th November 2021
The COVID-19 situation in many EMs has improved markedly over the past month or so as new infections have fallen sharply and vaccine rollouts have gathered pace. That said, the recent surge in virus cases in Emerging Europe serves as reminder that the …
While Brazil’s bond and stock markets have struggled lately, we don’t think either are set for a significant rebound any time soon, and suspect both will remain under pressure in the run-up to next year’s election. The falls in Brazil’s financial markets …
Auto producers in Central and Eastern Europe (CEE) have experienced intermittent factory closures in the second half of this year and things may get worse before they get better. Motor vehicles production will remain stop-start until shortages of …
The indication from the Bank of England that Bank Rate of 1.25% would be too high for the economy suggests that the forthcoming rise in interest rates won’t be anywhere near large enough to topple the housing market. Rather, we expect house prices to rise …
We think that the Brazilian real will weaken a bit further against the US dollar over the next year, as fiscal risks and deteriorating terms of trade continue to weigh on the currency. With the exception of the Turkish lira, the real has been the …
4th November 2021
Brazil’s inverted yield curve has raised concerns that the economy may be on the brink of a recession, but it doesn’t have a particularly good track record as a leading indicator for economic downturns in the country. For our part, while downside risks to …
