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Strongest monthly rise in single-family starts for nearly three years Single-family starts saw the largest monthly increase in nearly three years in May, suggesting homebuilders have been responding to the recent rises in new home sales. We still expect a …
20th June 2023
The investment boom in new hi-tech manufacturing plants is unprecedented, but that boom still hasn’t fed through into higher output or employment in hi-tech manufacturing and investment in IT equipment has been muted in recent quarters. Software …
We don’t think growing enthusiasm about AI will be enough to stop the S&P 500 from declining if, as we expect, the US economy falls into recession later this year. Nonetheless, we now think the index will end this year a bit higher than we’d previously …
Note: We’re talking inflation and the BOJ, slowing Indian growth, and regional monetary easing in our Asia Drop-In on Thursday, 22 nd June. Register now . Overview – With inflation remaining very sticky, we now expect the RBA to lift the cash rate to a …
RBA will keep hiking to 4.85% The minutes of the RBA’s June meeting largely reaffirmed the Bank’s pivot to a more hawkish stance. To be sure, the Board did discuss the option of leaving rates unchanged, given the ongoing fall in households’ real …
Housing continues to shrug off high interest rates The recovery in house prices continued in May, with the sales-to-new listing ratio pointing to further gains ahead. Rising interest rates will have a more limited impact on home purchases than existing …
19th June 2023
Note: We’ll be discussing the UK’s economic, housing market and policy outlook in light of the BoE’s June rate decision in an online briefing on 22nd June at 10:00 EDT/15:00 BST . Register now . Overview – As the UK’s recent problem of higher inflation …
Note: We’re talking inflation and the BOJ, slowing Indian growth, and regional monetary easing in our Asia Drop-In on Thursday, 22 nd June. Register now . The female participation rate has surged over the past decade but more favourable attitudes among …
At face value, the recent improvement in market sentiment indicators supports the view that the worst may be past for housing. But looking deeper, we think this largely reflects supply-side improvements and will not be enough to prevent further weakness …
16th June 2023
We now suspect growing euphoria over AI will drive the S&P 500 to a significantly higher level than we had previously forecast by the end of next year. In the meantime, though, we still think a mild economic downturn may take some heat out of the stock …
Rebound in confidence likely to be short lived The end of the debt ceiling stand-off probably drove some of the rebound in the University of Michigan’s consumer sentiment index to 63.9 in early June, from 59.2. Despite that, confidence remains …
The latest MSCI data indicate that values in western European office markets have held up better since the start of the pandemic when compared with the US and UK. But given these cities face similar long-term problems, we remain downbeat about the …
Households feeling the pinch from higher rates Heavily indebted households are still being sheltered from the full impact of the surge in interest rates over the past 18 months, but their finances look ever-more perilous. The household debt to …
The Fed put its rate hiking cycle on pause this week but, in a hawkish shift, its new projections showed the median fed funds rate rising to 5.6% by year-end, which is consistent with 50bp of additional tightening. We agree that the Fed will push ahead …
Note: We’ll be discussing the UK’s economic, housing market and policy outlook in light of the BoE’s June rate decision in an online briefing on 22nd June at 10:00 EDT/15:00 BST . Register now . The title of last week’s UK Economics Weekly was “Why …
More ground to cover The message from the ECB yesterday was decidedly hawkish. The Bank raised rates and more or less promised another hike in July, while the substantial upward revision to its inflation forecasts implied that further tightening could …
How low Fed and ECB policy rates will go, when they are eventually normalised, is at least as important for financial markets as the precise timings of the ends of tightening cycles, in our view. We think both central banks will cut deeper than investors …
Note: We’re talking inflation and the BOJ, slowing Indian growth, and regional monetary easing in our Asia Drop-In on Thursday, 22 nd June. Register now . The Bank of Japan left its monetary policy settings and assessment of the economy unchanged today. …
Note: We’re talking inflation and the BOJ, slowing Indian growth, and regional monetary easing in our Asia Drop-In on Thursday, 22 nd June. Register now . Car exports catch up with other exports The external trade figures released this week suggest that …
More inaction to come As was widely expected, the Bank of Japan didn’t make any policy changes to either the short-term policy rate or Yield Curve Control (YCC) at Governor Ueda’s second meeting today. There was also no change to the Bank’s less upbeat …
Mortgage defaults will rise in Australia On Wednesday, the Council of Financial Regulators announced its support for the serviceability buffer set by the Australian Prudential Regulation Authority, reigniting an ongoing debate over the stringency of the …
Although we no longer expect Gilts to outperform in local-currency terms, we do think they’re set to hold up better against Treasuries and Bunds over the rest of this year than they have done lately. Gilts have seen a renewed sell-off lately. The 10-year …
15th June 2023
Gains in sales & output both muted The 0.3% m/m increase in retail sales included a 1.4% m/m gain in the value of motor vehicle sales, which is very hard to square with the 6.5% m/m decline in light vehicle unit sales already reported by manufacturers. …
Sales benefitting from easing supply shortages The resilience of manufacturing sales suggests easing supply shortages are still supporting activity, with the transport sector reaping much of the benefits. Nevertheless, the surveys point to a weaker …
Manufacturing stagnant, but better than the drop back we had expected The 0.2% m/m decline in industrial production in May was due to a 1.8% m/m drop in utilities output and a 0.4% decline in mining. Manufacturing output increased by 0.1% m/m, which …
Sales soft, despite suspicious increase in vehicle sales The 0.3% m/m increase in retail sales included a 1.4% m/m gain in the value of motor vehicle sales, which is very hard to square with the 6.5% m/m decline in light vehicle unit sales already …
As expected, the Fed held its policy rate unchanged at between 5.00% and 5.25% today, but it made clear in the accompanying statement that pause was only to allow officials to “assess additional information and its implications for monetary policy”. In a …
Tight labour market will prompt more monetary tightening With the labour market still firing on all cylinders, we’re happy with our forecast that the Reserve Bank of Australia will lift the cash rate all the way to 4.85% by September. The 75,900 rise in …
Stagnant exports a prelude of downturn to come The trade deficit narrowed for an eighth consecutive month in May as both import prices and volumes continued to fall. “Core” machinery orders rebounded in April, but that still points to a fall in capital …
Struggling exports a prelude of downturn to come Export values inched up by just 0.6 y/y in May. That translated into a 3.1% m/m fall in seasonally adjusted terms. With export prices having risen by 2.0% m/m in May, volumes probably saw a sharp fall, …
Recession will drive RBNZ to cut rates by Q4 The contraction in Q1 GDP means that a recession is now well under way in New Zealand. Accordingly, we’re sticking with our forecast that the RBNZ will shift gears and start cutting rates before year-end. The …
Recession will drive RBNZ to cut rates by Q4 With New Zealand now in recession, we’re more confident that the RBNZ will start cutting rates by Q4 of this year itself. The -0.1% q/q contraction in production GDP was in line with what most, including …
Fed pauses as expected but, in hawkish move, eyes 50bp in additional rate hikes As expected, the Fed held its policy rate unchanged at between 5.00% and 5.25% today, but it made clear in the accompanying statement that pause was only to allow officials to …
14th June 2023
Florida and other parts of the Sunbelt (notably major cities in Texas) will likely face the most severe physical climate risk over the next 30 years. While this is unlikely to come as a major surprise, we don’t believe that this risk is being consistently …
Output will weaken despite increase in April The uptick in industrial production in April was mostly driven by strong growth in Ireland, with many other major euro-zone economies recording a fall in output. We expect industry to struggle this year as …
Resurgence in activity unlikely to last Note: We’ll be discussing the UK’s economic, housing market and policy outlook in light of the BoE’s June rate decision in an online briefing on 22nd June at 10:00 EDT/15:00 BST . Register now . The 0.2% m/m rise in …
While selling its exchange-traded fund (ETF) holdings at book value to the government wouldn’t impair the Bank of Japan’s balance sheet, we don’t think it would provide the boost to fiscal revenue that policymakers seem to be hoping for. And while the …
Resurgence in activity unlikely to last The 0.2% m/m rise in real GDP in April will further raise hopes that the economy will escape a recession this year. But the rise in GDP is not as good as it seems. And with the full drag from high interest rates …
We think UK real GDP rose a bit in April (07.00 BST) Euro-zone industrial production probably edged up in April (10.00 BST) We expect the Fed to leave interest rates unchanged (19.00 BST) Key Market Themes The 10-year Gilt yield has continued to march …
13th June 2023
With inflation still running hot, the Bank of England has little choice to keep raising interest rates. But how high will policymakers take Bank Rate, and – with headlines dominated by news of 6% mortgage rates – what will that mean for the UK economic …
Core inflation still uncomfortably high Headline CPI inflation fell to a more than two-year low of 4.0% in May, thanks to favourable base effects and another sharp drop back in energy prices last month but, with core price inflation still as high as …
Core inflation remains uncomfortably high for the Fed Headline CPI inflation fell to a more than two-year low of 4.0% in May, thanks to favourable base effects and another sharp drop back in energy prices last month but, with core price inflation still as …
Borrowing curbed in response to rising interest rates With mortgage rates surging, the number of loans issued to buy a home dropped sharply in Q1, with Buy-to-Let (BTL) lending seeing the most severe drop. Those that did press ahead with a home purchase …
Reacceleration in wage growth supports the case for further rate hikes Note: We’ll be discussing the Fed and ECB June decisions and previewing the Bank of England's upcoming meeting in a briefing at 10:00 EDT/15:00 BST on 15 th June. Register here . The …
Reacceleration in wage growth supports the case for further rate hikes The labour market became tighter in April and wage growth reaccelerated. That will only add to the heat already on the Bank of England to raise interest rates further at the policy …
One reason for the slump in productivity is that the recent surge in working hours is producing diminishing returns. And we suspect that disruptions caused by the pandemic prevented firms from stepping up business investment in response to record capacity …
With less than a year and a half to go until the next general election, calls for the Chancellor, Jeremy Hunt, to cut a range of taxes have been growing. But recent economic developments mean the Chancellor is unlikely to have much fiscal firepower …
12th June 2023
Surprise increase in lending in May, but signs of distress growing While bank net lending to commercial real estate (CRE) turned positive again in May, growing signs of distress for existing loans point to further weakness ahead. (See Chart 1.) The …
