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Market grinds to a halt Existing home sales fell to their lowest level since October 2010 in September as the increase in mortgage rates to a fresh 23-year high caused buyers and sellers to withdraw from the market. A decline in mortgage applications for …
19th October 2023
After a brief respite earlier this year, property yields are once again on the rise, driven by a further increase in gilt yields. We don’t expect a repeat of the surge seen last year, but we also think any compression beyond this year will be minimal as …
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 .) As our new higher estimate of the real neutral interest rate, or r*, for …
This page has been updated with additional analysis since first publication Fall in joblessness complicates picture for the RBA The September data suggest that the labour market could take longer to cool than the RBA currently expects. Accordingly, we …
Drag from net trade unlikely to persist Net trade probably was a large drag on GDP growth in Q3, but we suspect it will become less of a drag this quarter. The 4.3% annual rise in export values in September was stronger than the analyst consensus of 3.1% …
Recession risks rising and inflation falling again Bank to remain on hold but stress too soon to declare victory Bank’s latest analysis implies QT could continue until as late as 2026 The business surveys point to rising recession risks and core inflation …
18th October 2023
We expect demand to be weakest in the six major markets, but new supply is also set to be low in those markets. Elsewhere, we think southern metros will continue to see stronger absorption, though Austin and Miami have large completions pipelines over the …
Starts rebound, but headwinds remain Single-family starts edged higher in September to 963,000 annualised from 933,000 in August and building permits also rose to a 15-month high. However, we don’t think this means single-family construction activity has …
The ongoing outflow of funds from the Fed’s reverse repo facility has completely offset the downward pressure on bank reserves from quantitative tightening (QT), suggesting that the Fed could continue to let its asset holdings run down for longer than …
The weakness of GDP growth in the second and third quarters means that the Bank of Canada is likely to make a marked re-assessment of its output gap estimates in its October Monetary Policy Report (MPR). Some indicators suggest that output has already …
There is a growing body of evidence that suggests wage pressures are past their peak, but it’s not clear how quickly wage growth will slow. The gradual loosening in the labour market and the experience in the US suggests that UK wage growth may ease only …
The failure of CPI inflation to fall in September from August’s rate of 6.7% will be a bit of a disappointment to most (consensus forecast 6.6%, CE forecast 6.8%). But at 6.7% it is still below the 6.9% rate the Bank of England projected back in August …
Economists from our ANZ and Markets teams held an online briefing following the release of Australian Q3 inflation data. During this discussion, Asia-Pacific head Marcel Thieliant, ANZ Economist Abhijit Surya and Senior Markets Economist Tom Mathews …
17th October 2023
We think equilibrium real policy rates in advanced economies will continue to rise over the next decade or so. That has profound implications for government bond yields and risky asset valuations. Discussions of ‘higher for longer’ generally relate to the …
House prices heading lower again The renewed increases in mortgage rates and new listings mean we now expect house prices to fall by 5% over the next six months. The big risk, however, is that we are underestimating the degree to which forced sales are …
Chapter 4: Financial market implications …
Chapter 3: Where will inflation (and nominal rates) settle? …
Chapter 2: How will the savings/investment balance affect r*? …
Chapter 1: Will stronger potential growth boost r*? …
Introduction and framework …
r* and the end of the ultra-low rates era: executive summary …
Further evidence of economic strength in September The 0.3% m/m rise in industrial production in September is another sign that the real economy remains in solid shape. Production was hit by a slight 0.3% m/m drop-back in utilities output, but that was …
This page has been updated with additional analysis since first publication. Consumption solid heading into Q4 The unexpectedly-strong 0.7% m/m rise in retail sales in September continues the theme of consumer resilience in the face of higher interest …
What will a world of structurally higher interest rates look like? How will central bank behaviour change in the coming years? What will this mean for market returns? Our senior economist team hosted a special online briefing all about their new work …
This page has been updated with additional analysis since first publication. Wage growth passed its peak, but it will fall only gradually Cooling labour market conditions appeared to start feeding through into an easing in wage growth in August. That …
RBA will probably hike rates in November The minutes of the RBA’s October meeting support our view that the Bank will deliver a final 25bp rate hike at its November meeting. While the Bank decided to keep rates unchanged at that meeting, it kept …
This page has been updated with additional analysis since first publication. RBNZ to remain on hold as inflation continues to soften With price pressures on track to moderate further, we think that Reserve Bank of New Zealand won’t lift rates any higher. …
16th October 2023
The Bank of Canada’s quarterly surveys show that businesses’ inflation expectations continue to decline, albeit slowly, and point to a growing risk that the economy will fall into recession. Accordingly, we continue to doubt that the Bank will raise …
September saw sharp drawback in lending The jump in lending in August proved temporary as net lending to commercial property totalled just $13.5bn in September, below the average for 2023 thus far. This took total outstanding real estate debt to $5.5trn. …
Manufacturing losing momentum The surprise fall in manufacturing sales volumes in August reduces the chance of GDP rising by any more than the initial preliminary estimate of a 0.1% m/m gain, and means a second consecutive contraction is still on the …
The job-to-applicant ratio has usually signalled earlier than the Tankan that the labour market has taken a turn for the worse. But despite the recent fall in the number of jobs relative to applicants, we still think that the labour market will soon start …
There are growing indications that household finances are coming under pressure as mortgagors struggle with rising debt-servicing costs. Although households benefit from substantial liquidity buffers, we suspect they won’t be rushing to run those down to …
The fall in house prices in September shows just how quickly conditions in the housing market have shifted and the plunge in the sales-to-new listing ratio points to more weakness to come. That is another reason to expect the Bank of Canada to cut …
13th October 2023
Confidence suffers from renewed inflation concerns The sharp fall in the University of Michigan consumer sentiment index to a five-month low of 63.0 in early October, from 68.1, probably reflects the hit from recent financial market moves, as well as …
There appears to be growing support at the Fed for the idea that the recent sell-off in long-term Treasuries reduces the need for further policy rate hikes, but the more persuasive reason for the Fed to pause is that inflation is continuing to ease …
Almost as fast as gilt yields rose (see here ) they have subsided. After surging from 4.68% on 2 nd October to a 21-year high of 5.11% last Friday, the 30-year gilt yield dropped to 4.72% on Thursday, although it has since ticked up to 4.85% on the back …
The latest activity and survey data have provided even more evidence that the resilience in activity in advanced economies over the first half of 2023 is now fading. High interest rates are clearly weighing on credit growth, and a further rise in debt …
Economy probably won’t overheat The IMF this week revised up its forecast for Japan’s 2023 GDP growth from 1.4% to 2.0%, broadly matching our own. With activity rising much faster than its sustainable rate, any remaining spare capacity in the economy has …
What to expect from a change of guard The headlines this week have largely been dominated by the last leg of campaigning ahead of New Zealand’s general election on October 14 th . The latest opinion polling suggests that five parties are likely to cross …
Surging interest rates caused mortgage demand to slump in Q3 at the same time as rising defaults led lenders to tighten mortgage credit conditions. Similarly, it became more difficult to secure commercial real estate loans. We expect availability of …
12th October 2023
This page has been updated with additional analysis since first publication. Core inflation to remain on downward trend The 0.3% m/m rise in core consumer prices in September suggests, at face value, that the downward trend in core inflation may be …
Higher interest rates weighed sharply on households’ demand for mortgages in Q3 and banks expect demand for mortgages to fall further in Q4. This is a clear sign that higher interest rates are working. And our forecast that mortgage rates will stay above …
We think euro-zone equities’ recent run of underperformance relative to those in the US will extend over the next couple of years, as bond yields fall back and enthusiasm around “AI” continues to grow. With the bond market sell-off seemingly having abated …
This page has been updated with additional analysis since first publication. August’s resilience won’t prevent contraction in GDP in Q3 The 0.2% m/m rise in real GDP in August followed July’s 0.6% m/m contraction and will raise hopes that the economy has …
Surveyors reported the most widespread price falls since February 2009 in September as mortgage rates of over 5% took their toll. Looking ahead, a further slide in house prices appears inevitable. The drop in the past prices balance to a fresh 14-year low …
Most of the recent surge in net migration has been driven by the increased arrival of foreign students, who generally spend less, work fewer hours and demand less housing than the average Australian. On balance though, the surge in net migration probably …
This page has been updated with additional analysis since first publication. Non-residential investment probably declined in Q3 Machinery orders are on track for a fall across the third quarter, consistent with our forecast of a decline in business …
Minutes stress uncertainty over economic outlook Despite the ‘higher for longer’ message from the Fed’s updated rate projections last month, the minutes from the September FOMC meeting suggest that officials’ confidence in those forecasts is limited, with …
11th October 2023
Overview – The outlook for offices is negative across all markets, but we expect substantial differences across the 17 metros we forecast. We now think Seattle, San Francisco and Austin will see vacancy rise by more than 5%-pts over 2023-25, taking the …
