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It’s perhaps surprising that financials have outperformed the S&P 500 during the recent bout of market turbulence . (See Chart 1.) After all, Treasury yields have fallen and the outlook for the US economy has darkened, both of which might have been …
27th August 2024
Our fair value analysis suggests that appraisal-based NOI yields need to rise by 50-60 bps from Q2 levels. But downgrades to our expectations for Treasury yields in the latter years of our forecast horizon mean the cyclical peak in yields implied by this …
Softer house price gains reflect looser market The muted 0.2% rise in the national Case-Shiller house price index in June was no shock considering that buyer demand collapsed that month, while supply kept growing. With the spring selling season now over …
The persistent strength in producer price inflation probably still mostly reflects the lagged influence of the surge in import costs rather than any pick-up in wage growth. If the yen keeps strengthening over the next couple of years, inflation will fall …
Wage growth is starting to outpace inflation and with real incomes rising, the rebound in consumer spending has further to run. While underlying inflation will fall further below 2% over the coming months, we still expect the Bank to hike rates once more …
26th August 2024
On the latest episode of The Weekly Briefing from Capital Economics , Group Chief Economist Neil Shearing and Stephen Brown, our Deputy Chief North America Economist, give their take on what Jerome Powell said to the Fed’s annual gathering at Jackson …
23rd August 2024
The dovish speech from Chair Jerome Powell at the Jackson Hole Symposium suggests that the Fed will be choosing between a 25bp and a 50bp cut at its meeting in September. A 50bp cut would look less likely if the unemployment rate drops back this month, …
Drop in mortgage rates drives surge in new home sales The surge in new home sales in July was driven by pent-up buyers taking advantage of the sharp drop in borrowing costs last month, after having been sidelined earlier this year by high mortgage rates. …
Dovish Powell hints at potential for 50 bp cut Fed Chair Jerome Powell’s dovish tone at Jackson Hole today and pledge to do “everything we can to support a strong labour market” implies that a 50 bp cut could be on the table at the September meeting, …
At first glance, the 1.1% m/m increase in Adzuna job vacancies in July, the first monthly rise this year, together with the fall in the unemployment rate to 4.2% in June and the 127,000 rebound in employment between April and June, suggests the recent …
The muted gains in the Bank of Canada’s preferred core price measures in July make another interest rate cut at the September meeting seem inevitable. The Bank will be encouraged by the second soft monthly gain in rents, which may be a sign that we have …
Heading for a better third quarter Despite the 0.1% m/m gain in June, retail sales volumes contracted last quarter, suggesting that household consumption growth also slowed. Prospects for the third quarter look better, with the preliminary estimate …
Underlying inflation falling below 2% According to a recent survey, 57% of analysts predict another rate hike by year-end, with one-third thinking it will happen in October and the remainder favouring the December meeting. In his parliamentary hearing …
Restrictive policy will do its job Earlier this week the Reserve Bank of Australia published the minutes of its August meeting, which showed that the Board remains concerned about upside inflation risks. In particular, the Bank noted that there was likely …
Underlying inflation will fall below 2% With underlying inflation falling below 2% for the first time since 2022 and set to decline further, the case for further monetary tightening is starting to diminish. Headline inflation held steady at 2.8% in July, …
After six consecutive years of underperformance, retail outperformed the all-property average in 2023. With the sector well down the road to dealing with the combined effects of e-commerce, oversupply of retail space and the pandemic lockdowns, we think …
22nd August 2024
The latest flash PMIs suggest that strong activity in the service sector has continued to support GDP growth in advanced economies in Q3, but that the outlook has worsened somewhat. Meanwhile, services price pressures have continued to ease, meaning …
Lower rates set the stage for a recovery in activity The small rebound in existing home sales in July seems underwhelming after last month’s large drop in mortgage rates, but the data are based on completed transactions and so it will take at least …
This page has been updated with additional analysis since first publication. Fading price pressures support the case for more rate cuts this year August’s composite PMI provides further evidence that some of the recent strength of activity in the first …
This page has been updated with additional analysis since first publication. Flash PMI points to further rapid rebound in activity The rise in the composite PMI to a 16-month high suggests that the strong rebound in activity that started last quarter …
Fed minutes confirm September rate cut The minutes of the Fed’s late July policy meeting showed broad agreement that “it would likely be appropriate to ease policy at the next meeting” in September. While the weak July Employment Report released since …
21st August 2024
We don’t think the slew of inflation-busting public sector pay deals that have been agreed by the new government will prevent wage growth from slowing next year to the rates of 3.0-3.5% we think are consistent with the 2.0% inflation target. But the big …
Downward revisions leave employment growth still healthy The 818,000 downward revision implied by the preliminary benchmark estimate to the non-farm payroll data were roughly in line with what we had expected based on the earlier data implied by the …
This page has been updated with additional analysis since first publication. Limited wiggle room for the Chancellor at the Budget July’s public finances figures continued the recent run of bad news on the fiscal position, with public borrowing on track to …
We believe that employment growth isn’t as strong as the Australian Bureau of Statistics is reporting because net migration seems to have weakened more sharply than the ABS is assuming. While it will take many months for the labour force survey to reveal …
Nearly all of the pullback in the S&P 500 since the bout of rotation in the stock market began in the wake of June’s CPI report on 11 th July has now been reversed. Admittedly, the same cannot be said for the rotation itself. But we remain of the view …
20th August 2024
Retail real estate has faced a tough period, buffeted by the rise of e-commerce, extensive oversupply and the impacts of the pandemic on in-store shopping. But we think the sector is well down the road to dealing with those challenges and now offers a …
Renewed downward momentum in core prices The softer monthly gains in the Bank of Canada’s preferred core price measures in July suggest that the previous two months reflected normal volatility rather than a stalling of the downward trend in core …
There are good reasons to expect services inflation to start falling again towards the end of this year and in 2025. But as long as wage growth remains high, services inflation will stay strong too. This morning Eurostat published the full breakdown of …
After a summer of extraordinary economic, market and political developments, what can investors expect through the end of 2024? Our senior economists held this special briefing all about the risks we’re watching in the final months of the year. During …
RBA won’t be rushed into rate cuts The minutes of the RBA’s August meeting confirmed what we already knew from Governor Bullock's post-meeting press conference: the Board discussed the case for a 25bp hike before ultimately deciding to leave rates …
The weaker July employment report and another set of mild inflation data mean the Fed remains on track to cut interest rates in September. With the activity data still supportive of our view that the economy is heading for a soft landing, we doubt the Fed …
19th August 2024
The global macroeconomic risks surrounding a possible ceasefire deal between Israel and Hamas are asymmetric. An agreement – while having significant economic consequences for countries in the region – would probably not itself be a game-changer for …
While we expect inflation to fall below the Bank of Japan’s 2% next year, the Bank’s still very accommodative stance means that this alone won’t trigger interest rate cuts. We think it would require a major downturn in activity that results in a looser …
As markets have come roaring back from the recent growth scare, Group Chief Economist Neil Shearing talks to Jennifer McKeown, Capital Economics’ Chief Global Economist, about the true state of the global economy and the outlook for policy. Their …
18th August 2024
The data this week cast doubt on the Bank of Canada’s view that the worst is already behind us for the economy, with manufacturing sales slumping to a two-and-a-half year low in June and non-residential building permit volumes plunging to their lowest …
16th August 2024
Housing recovery yet to take off Interest rate cuts have so far failed to stimulate the housing market, although the sharper drop in borrowing costs this month will lend more support. Regional divergences are growing, with Toronto likely to struggle with …
More good data all round More good price data The July price data should have provided more relief for any Fed officials still worried about inflation. The PPI, CPI and import price data imply that the Fed’s preferred core PCE measure increased by 0.16% …
Rebound in confidence driven by political change The small rebound in the University of Michigan consumer sentiment index in August was entirely driven by recent political developments, and still leaves it below its level for most of this year. At face …
The good news just kept coming this week. The economy grew by an above-trend rate for the second quarter in a row in Q2 (see here ), the unemployment rate fell to 4.2%, well below most estimates of the natural rate of around 4.50%. (See here .) And at …
Housing starts hit by hurricane The slump in both housing starts and building permits in July, to the lowest levels since the epoch of the pandemic, only partly reflects the temporary impact of Hurricane Beryl. Accordingly, even though lower interest …
Manufacturing sales weakest since January 2022 It was an extremely poor month for the manufacturing sector in June, with sales falling to a two-and-a-half-year low. As new orders slumped, inventories are elevated and the S&P Global manufacturing PMI for …
This page has been updated with additional analysis since first publication. Better start to Q3 not as good as it looks After a weather disrupted Q2, July’s 0.5% m/m rise in retail sales volumes (consensus forecast 0.6% m/m, CE forecast 0.5% m/m) was …
Real labour incomes rising again The 0.8% q/q rise in Q2 GDP was stronger than most had anticipated though close to our Nowcast estimate. The main driver was a 1% q/q jump in consumption, the first increase following four consecutive quarterly falls. That …
Downside risks abound in New Zealand Our non-consensus call that the RBNZ would start normalising policy this week came to fruition, with the Bank handing down its first rate cut in over four years. But while the Committee reached a full consensus that it …
The recent drop in mortgage rates has caused house prices to rise a bit faster than expected. As a result, we now think house prices will grow by 2.0% y/y in Q4 2024 (1.0% previously). What’s more, our forecast that Bank Rate will be cut from 5.00% now to …
15th August 2024
