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Today’s rebound in Amazon’s share price following news that its sales were better than expected in Q3 has shored up the performance of the ‘Magnificent 7’ in what has otherwise been a tough week for most of them amid a mixed bag of reports, lingering …
27th October 2023
The Bank of Canada’s insistence that inflationary risks have increased seems at odds with its new forecasts, which show a large degree of economic slack opening up next year. Our view that the Bank is still overestimating the near-term outlook for both …
Has the AI productivity boom already begun? New Speaker, old problems The House Republicans finally managed to elect a new Speaker this week, with the caucus eventually rallying around Mike Johnson, who up until this week could hardly have been described …
Stronger rise in core prices likely to be a blip The stronger gains in real consumption and the core PCE price index in September are a potential concern for Fed officials, but won’t be enough to convince them to resume raising interest rates next week, …
Note: We’ll be discussing the latest Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm GMT on Thursday 2 nd November . (Register here .) In the last few months there has been more concern over the accuracy of key economic data. The recent …
Global goods trade rose slightly in August and timelier data point to further gains in September. But we expect global trade to fall again in due course as economic downturns in several advanced economies weigh on their demand for traded goods. According …
In line with our upwardly revised forecasts for the 10-year US Treasury yield, we’ve raised our projections for 10-year government bond yields in most other developed market economies. But we still expect those yields to fall, in general, by the end of …
BoJ probably won’t tweak Yield Curve Control Media reports suggest that the Bank of Japan may tweak Yield Curve Control yet again at next week’s Board meeting. That’s certainly possible: 10-year JGB yields have risen sharply since the launch of the new …
RBA has more work to do Most of the data published this week highlight the imperative for the RBA tighten policy. To start with, Wednesday’s CPI release showed that Australia’s inflation problem is far from over. In fact, there are two pieces of …
This page has been updated with additional analysis since first publication. Underlying inflation set to decline further While the jump in inflation in Tokyo to a seven-month high wasn’t nearly as bad as it looks, it is consistent with our view that …
The Q3 RICS survey indicated occupier and investment sentiment fell further in Q3, with the latter reflected in weak investment volumes throughout the summer months. But tight credit conditions and a slowing economy mean the trough in confidence is …
26th October 2023
Weak demand and investment, but capital values nearing the trough Having started the year on a somewhat promising footing, all-property occupier demand has weakened since and fell further in Q3. The demand balances for offices and retail remained …
Norges Bank is almost certain to leave its policy rate unchanged at 4.25% next week. And we suspect that, given September’s weak inflation data, it will also soften its language about implementing one final rate hike in December. Next year, we think the …
Although US high-yield (HY) corporate bonds are more attractively valued than at any time since the Global Financial Crisis (GFC), we doubt they will outperform US equities over the next couple of years. The yield of ICE BofA’s index of US HY corporate …
Our new higher forecasts for US Treasury yields mean that mortgage rates won’t fall as quickly as we previously predicted. While we still expect mortgage rates to decline they are unlikely to fall below 6.0% before end-2025, muting any recovery in house …
After the 336,000 jump in non-farm payrolls in September, we expect a more modest 200,000 increase in October. Moreover, despite some strength in labour demand, wage growth continues to ease. September’s unexpectedly-strong 336,000 rise in non-farm …
US households still the world’s spenders of last resort On its own, the stunningly-strong 4.9% annualised gain in third-quarter GDP suggests that the Fed needs to do even more to slow demand, but just as notable was the slowdown in core PCE inflation to …
The -1.4% quarterly return in Q3 meant that there have now been four consecutive negative quarters for all-property total returns. That figure was dragged down by a 5% q/q fall in office values as all-property values fell by 2.4% q/q. That took the …
Note: We’ll be discussing the latest Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm GMT on Thursday 2 nd November . (Register here .) A second consecutive hold to all-but confirm that 5.25% is the summit for interest rates Sticky core …
Strong immigration is unlikely to be enough to prevent a mild recession, with GDP contracting recently and the business surveys consistent with further declines. As house prices are falling again, household debt is elevated and high interest rates are …
25th October 2023
Although the Bank of Canada maintained its tightening bias today, the rest of its communications suggest that the Bank is growing more confident it has done enough to eventually get inflation back to 2%. We continue to expect the Bank to cut interest …
Fed to hold rates at 5.25%-5.50%, and keep further tightening on the table… …but surging long-term Treasury yields reducing appetite for final hike Sharp decline in core inflation to see rates cut to 3.25%-3.50% by end-2024 We don’t expect a significant …
Bank maintains tightening bias but next move likely to be a cut Although the Bank of Canada maintained its tightening bias today, the rest of the policy statement suggests that the Bank is growing more confident that its job is done. We continue to expect …
New home sales resume upward trend Extraordinarily limited supply in the existing homes market continued to drive buyers to new homes in September. The 12.4% m/m rise in new home sales in September took them to 759,000 annualised (consensus 680,000), …
The proposed extension to the Mortgage Guarantee Scheme could prove a good counter-cyclical policy in areas where house prices are relatively low. But the scheme has far less impact in London and the South where a much bigger deposit than 5% is needed to …
We suspect that more weakness in the housing market will weigh on real GDP by further reducing residential investment and consumer spending. This is one reason why we think the economy is close to a mild recession, if it isn’t already in one. Higher …
This page has been updated with additional analysis since first publication. German economy still contracting The small rise in the Ifo Business Climate Index (BCI) in October still left the index in contractionary territory, echoing the downbeat message …
This page has been updated with additional analysis since first publication. RBA to hike again as inflation surprises on the upside With price pressures being slower to abate than the RBA had anticipated, we think the Bank will deliver one final 25bp …
The October flash PMI surveys suggest that economic activity got off to a weak start in Q4, especially in Europe. And with weak activity taking some of the steam out of labour markets and inflation, we are growing more confident in our view that the Fed, …
24th October 2023
Overview – Global headline inflation has fallen sharply from its peak a year ago and, despite a temporary setback due to higher fuel inflation, we expect it to fall a lot further over the coming year. The huge drag from energy inflation is now largely in …
This page has been updated with additional analysis since first publication. Signs that recession may be underway, but services price inflation still sticky The composite activity PMI inched up from 48.5 in September to 48.6 in October after five months …
This page has been updated with additional analysis since first publication. Faint signs the labour market hasn’t loosened as much The labour market appeared not to loosen as much as we thought in August based on the Office for National Statistics’ (ONS) …
Board will revise up FY2023 inflation forecasts but signal below-target inflation in 2025 We don’t expect any tweaks to Yield Curve Control but the policy is effectively over Negative rates will end in early-2024, YCC will formally be abandoned by …
Our forecast that the Bank of England won’t start cutting interest rates until the second half of 2024 means mortgage rates are likely to stay between 5% and 6% until mid-2024. While transactions volumes have only seen a modest decline so far, very weak …
23rd October 2023
The renewed weakness in the housing market and likelihood that mortgage interest cost inflation will soon ease are reasons to expect core inflation to trend lower in the coming months. Next week, the Bank of Canada’s new forecasts may show that it thinks …
20th October 2023
The apparent strength of third-quarter GDP growth won’t convince the Fed to resume hiking its policy rate, particularly with the ongoing surge in long-term bond yields presenting a growing threat to the economy. Q3 GDP growth strong Despite the recent hit …
Although we have revised up our forecasts for the 10-year Treasury yield between now and the end of 2025, we aren’t inclined to change our upbeat projection for the S&P 500 over this period . This is because the big increase in equity prices that we are …
Weakness in sales volumes adds to recession fears The weakness of retail sales volumes in August and September suggest that consumption is stagnating at best, and that “excess demand” has faded faster than the Bank of Canada initially expected. That is …
The renewed surge in long-term Treasury yields illustrates that the full impact of Fed tightening is still feeding through, and we continue to expect economic growth to slow sharply over the coming quarters. With core inflation still looking on course to …
We'll be discussing the implications of the end of the ultra-low interest rates era and the rise in R* in an online Drop-In at 12:30 GMT on Tuesday 31st October. (Register here .) The conflict in the Middle East continues to dominate the news and from an …
This page has been updated with additional analysis since first publication. The start of another retail recession The 0.9% m/m fall in retail sales volumes in September meant sales volumes fell 0.8% q/q in Q3 and suggests that after the 18-month-long …
This page has been updated with additional analysis since first publication. Buoyant economy to date increases scope for pre-election giveaways September's public finances figures continued the recent run of better-than-expected news on the fiscal …
One more hike for the road Labour market data published yesterday showed that Australia's unemployment rate fell anew, from 3.7% to 3.6% in September, due largely to a pullback in workforce participation. As we explained in this Update , it increasingly …
Export values hit record high in September Export volumes bounced back by 4.6% m/m in September following the 6.1% m/m plunge in August. However, that left them a touch below the record high reached in July and means that export volumes have largely tread …
Japan’s trade unions are demanding an even larger pay hike in the upcoming spring wage negotiations and we believe that the talks will result in a base pay hike of around 2.5%. While the Bank of Japan may wait until the first round of results of the talks …
This page has been updated with additional analysis since first publication. Inflation will only fall below 2% by end-2024 While inflation weakened in September, we think inflation will only fall below the BoJ’s 2% target by the end of next year. The …
Senior economists from across our euro-zone, US and UK services held an online briefing on the October/November meetings of the Fed, ECB and Bank of England and the latest messaging from their policymakers. During this 20-minute briefing, the team …
19th October 2023
