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The recent strength of core inflation compared to that in the US is mainly due to a rebound in durable goods prices. That has little to do with demand, which has weakened to a greater extent in Canada, suggesting that either the earlier depreciation of …
11th October 2023
Labour has made housing a major theme of its conference, and the party’s attitude towards New Towns and social housing means that the next election could prove a turning point in the structure of the UK housing market. Over the past 30 years successive …
10th October 2023
Surging Treasury yields have pushed mortgage rates above 7.5%, higher than we had anticipated. If these borrowing rates persist, lending and sales volumes could fall even further in the near term creating a risk that house prices fall rather than stagnate …
Any fall in bond prices resulting from higher bond yields won’t affect the BoJ’s balance sheet unless the Bank decides to sell its holdings. By contrast, rising interest payments on commercial banks’ reserve holdings could create losses, though those …
Central banks in both Australia and New Zealand are likely to retain their hawkish bias in the near term, given that inflation is far from tamed in either country. While we think the RBNZ's tightening cycle is over, we expect RBA to hand down one final …
The recent shift towards looser fiscal policy in Italy and increase in sovereign bond yields once again have raised concerns that investors may lose confidence in Italy’s ability to sustain its debt burden. We don’t think this will morph into an acute …
9th October 2023
Welcome to a world of higher interest rates. This in-depth analysis shows you how the structural forces that have weighed on equilibrium real interest rates over the past two decades have faded, and the powerful new drivers that are likely to push them …
Our latest Chart Pack on Japan's economy is embedded below. With the economy growing at an above-trend pace, the labour market should soon start to tighten again. There are mounting signs that a virtuous cycle between wages and prices is starting to form …
The US stock market has rallied so far today and is on track to bring to an end a spell of weekly losses. Although we think that the proximate cause of this recent weakness – rising bond yields – has largely run its course, we don’t expect the fortunes of …
6th October 2023
The further rise in home listings in September and likelihood that mortgage rates will increase amid the global bond market sell-off suggests that house prices will soon fall again. While employment rose strongly in September, the fall in hours worked …
We expect the euro-zone economy to struggle over the next 18 months, and a mild recession in the coming quarters looks more likely than not. Headline and core inflation should keep falling, but the labour market will remain tight, keeping wage growth …
Rising long rates a fiscal rather than monetary problem Surge in long yields not all due to higher for longer The conventional wisdom is that the recent surge in Treasury yields is a reaction to the Fed’s “higher for longer” message. But that surge has …
The recent rise in gilt yields has been almost as fast as the political furore over the cancellation of the northern leg of HS2 this week. The 30-year gilt yield rose from 4.68% at the start of last week to a 20-year high of 5.06% at the time of writing …
Wage pressures easing This page has been updated with additional analysis since first publication. The strong headline employment gain in September was entirely due to a rebound in educational services employment, with employment elsewhere edging down. …
Despite strong payrolls, wage growth continues to slow The surprisingly strong 336,000 increase in non-farm payrolls in September adds to the evidence on real activity that the economy is holding up well despite the headwind from higher interest rates. …
What to make of the bond market sell-off? We have covered the implications of the bond sell-off for the global economy here . Three additional points are worth making in relation to the euro-zone. First, the increase in yields and associated tightening of …
The government bond sell-off over the past three months raises uncomfortable questions around the risks of financial instability and the outlook for fiscal policy. This note takes stock of what has driven the rise in long-term sovereign bond yields and …
Near-term momentum in house prices is downwards The sixth consecutive monthly decline in the Halifax House Price Index in September leaves it significantly more downbeat than the Nationwide figures about near-term momentum in house prices. Given the …
One more hike for good measure On Tuesday new RBA Governor Michele Bullock began her tenure not with a bang but with a whimper, by leaving the cash rate unchanged at 4.10%. What’s more, the statement accompanying the policy decision gave few indications …
Bond market sell-off pushes yen to one-year low The big event this week was the sharp fall in the yen after it breached 150 against the dollar while Tokyo was asleep in the early hours of Wednesday. Government officials have refused to comment on …
This page has been updated with additional analysis since first publication. Regular wage growth set to remain strong Regular earnings growth remained strong in August and with the labour market set to tighten, it could yet accelerate further. Growth in …
The ‘higher for longer’ narrative on interest rates that is baked into market pricing is at odds with evidence of widespread falls in inflation. Higher oil prices mean that fuel inflation will be a bit higher than seemed likely a few months ago. But the …
5th October 2023
A laundry list of explanations has been provided for the surge in the term premia of Treasuries since mid-year, which has accounted for more than ~100bp rise in the 10-year yield based on the ACM model estimate. (See Chart 1.) One explanation that doesn’t …
Q3 exports rebound, but outlook remains weak The trade deficit narrowed to a three-year low of $58.3bn in August, from $64.7bn, as exports increased by $4.1bn or (+1.6% m/m) and imports declined by $2.3bn (-0.7% m/m). The gain in exports was driven by a …
Surge in exports an upside risk to preliminary GDP estimate Exports rose by far more than imports in August, even as the latter benefited more from the fading disruption from the earlier BC port strikes. That suggests there are upside risks to the …
We expect any rise in bond yields to be gradual and don’t believe it will create major economic or market dislocation. But there are risks that the Bank of Japan loses control over longer-term yields . A rapid surge in bond yields would threaten the …
Australian economy braces for weaker growth Data released today reaffirm our view that the Australian economy is on shaky ground. To start with, trade data suggest that net exports will have become a drag on GDP growth in Q3. The trade surplus widened …
IWG’s record revenues in the first half of this year may suggest that flexible offices are the answer for many firms as hybrid working cements itself as the ‘new normal’. However, we don’t think current flexible offices currently offer the right product …
4th October 2023
Slowing momentum in activity, the recent decline in employment, and the sharp falls in core CPI and services inflation in August are clear signs that higher interest rates are weighing more heavily on the economy. This strengthens our view that the mild …
Surveys consistent with moderate growth The small fall in the ISM services index to 53.6 in September, from 54.5, contradicted the rebound in the ISM manufacturing index. Nevertheless, the weighted average of the two ISM surveys are still consistent with …
High mortgage rates crush home purchase demand Rising mortgage rates caused mortgage applications for home purchase to slip to a fresh 28-year low in September. With mortgage rates edging above 7.5% in the last week of the month as Treasury yields surged …
This page has been updated with additional analysis since first publication. Euro-zone headed for recession The drop in retail sales in August and weakness in the final PMIs for September are consistent with our view that the euro-zone economy will fall …
While some measures of optimism have been improving, the majority of the survey evidence suggests the economy is weakening and the chances of the mild recession we have been forecasting have increased. The 0.5% m/m fall in real GDP in July and the decline …
With its assessment of the balance of risks broadly unchanged, the Reserve Bank of New Zealand left rates on hold at its meeting today. Although the Bank will likely retain its tightening bias, we continue to believe that the official cash rate is at its …
RBNZ’s next move will be down Although the RBNZ will retain its tightening bias, we believe that the official cash rate is at its cyclical peak. All 27 of the analysts polled by Reuters, including ourselves, had expected the Bank to leave the OCR …
Office-based jobs are on course to underperform total jobs this year for the first time since 2009 and there is a growing risk this could be repeated in 2024, though that is not yet our central forecast. At the metro level, we expect differentials to …
3rd October 2023
This page has been updated with additional analysis since first publication . Japan’s Ministry of Finance may have intervened in support of the yen today after the USD/JPY rate rose through the symbolic 150 level in the wake of the upside surprise in US …
Although the job openings rate rebounded sharply in August, we suspect that was more noise than a signal that the labour market is enjoying a resurgence. The rest of the JOLTS report presented a more balanced picture, with the latest data still pointing …
While new RBA Governor Michelle Bullock didn’t spring any surprises at her first interest rate decision today, we think that the Bank will hike interest rates to a peak of 4.35% at its next meeting in November . However, we expect the RBA to pivot towards …
RBA will deliver final rate hike next month While new RBA Governor Michelle Bullock didn’t spring any surprises at her first monetary policy decision today, we think that the Bank will hike interest rates to a peak of 4.35% at its next meeting in …
By putting upward pressure on JGB yields and the yen, tighter monetary policy could lead to falls in the value of bonds and overseas assets held by Japanese investors. Insurance companies and pension funds have the most to lose. However, we do not think …
September’s manufacturing PMIs suggest that global industrial activity stagnated at the end of Q3, and forward-looking indicators point to further weakness ahead. The recent rise in oil prices seemed to push up the prices of manufactured goods. But …
2nd October 2023
ISM hits 10-month high; construction boosted by lack of homes for sale The ISM manufacturing index rallied to a 10-month high of 49.0 in September, from 47.6, but that still leaves the index at a level that, historically, has been consistent with GDP …
The stakes could not be higher for this year’s presidential election – with the head-to-head rematch between Joe Biden and Donald Trump offering starkly contrasting polices on trade, the environment and international relations. Historically, US …
Buying a first home has become increasingly difficult over the past 30 years. A high income is still essential, but other circumstances such as whether the individual is buying as part of a joint-income couple or has significant family wealth have become …
The valuations of “risky” assets have only been undermined a little by the big rise in the yields of “safe” assets in recent months. We think that the valuations of risky assets may fall a bit more in the near term, as growth falters. But further ahead …
Pause in price falls unlikely to mark the trough The stabilisation of house prices in September was a surprise given mortgage rates are still well above the level which allowed the first leg down in house prices to bottom out. But leading indicators of …
House price gains will slow further over coming months The housing rebound will continue to lose momentum over coming months as affordability is increasingly stretched, but policy easing by the RBA should provide a renewed boost to prices next year. …
