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A bipartisan deal to raise the debt ceiling alongside modest cuts to government spending still appears to be the most likely way out of the current impasse. It's possible that moderate Republicans will step in to help the Democrats push through a …
3rd May 2023
Although the unemployment rate remains near a record low, the decline in vacancies suggests that labour market conditions have nevertheless eased, supporting our view that wage growth is close to a peak. While the unemployment rate has been unchanged at …
ISM suggests activity weak in second quarter The slight rebound in the ISM services index to 51.9 in April from 51.2 in March was broadly in line with the small gain in the ISM manufacturing index. Nevertheless, that still leaves the composite index at a …
A combination of the falls in global agricultural commodity prices, energy prices and wage growth will soon drag down food CPI inflation from a 46-year high of 19.6% in March perhaps to around 4.5% by the end of the year. Food inflation will soon become a …
ADP surge another sign that in April the sweetest showers fall The ADP report – suggesting that private sector employment increased by a stronger 296,000 in April, more than double the 142,000 gain the month before – is another signal that the economy …
Demand in line with post-GFC lows The slight rise in mortgage applications in April left them little changed from their recent lows, pointing to further near-term weakness in sales. While we expect affordability will gradually improve, growing economic …
Berlin offices have been outperforming those in other German markets for some time. But Q1 data suggest that growth has begun to falter, and we think that the recent strength of the market won’t last. Berlin office rents have risen rapidly over …
Weakness in consumption growth While retail sales values rose at a decent pace in March, we estimate that sales volumes fell the most since 2021’s lockdowns last quarter and that weakness has further to run. That in turn should prevent the Reserve Bank of …
Weakness in consumption growth will deter RBA from further rate hikes While retail sales values rose at a decent pace in March, we estimate that sales volumes fell the most since 2021’s lockdowns last quarter and that weakness has further to run. The 0.4% …
Labour market continues to run red hot New Zealand’s labour market remained extremely tight last quarter, presenting upside risks to our forecast for a 25bp rate hike later this month. The 0.8% q/q rise in employment was stronger than most had …
Tight labour market raises the risk of outsized RBNZ hike The strength of New Zealand’s labour market last quarter poses upside risks to our view that the RBNZ will lift rates by 25bp later this month. The 0.8% q/q rise in employment in Q1 was stronger …
The decline in job openings to a near two-year low of 9.6 million in March, from a peak of 12.1 million a year earlier, suggests that, even without a rise in the unemployment rate, labour market conditions are nevertheless easing and are consistent with a …
2nd May 2023
House price falls pause in April The pause in house price falls in April suggested that the reversal of the autumn spike in mortgage rates has allowed prices to stabilise. But with affordability still very stretched by historical standards and the economy …
The Reserve Bank of Australia retained its tightening bias when it lifted the cash rate by 25bp at today’s meeting, but we suspect that it won’t raise interest rates any further over the coming months . The Bank’s decision to lift the cash rate from 3.60% …
Tightening cycle over but rates will only be lowered in Q2 2024 The Reserve Bank of Australia retained its tightening bias when it lifted the cash rate by 25bp at today’s meeting, but we suspect that it won’t raise interest rates any further over the …
Japan’s large corporate sector surpluses are a key source of deflationary pressure. Corporate savings surged in the 1990s, primarily because net interest payments slumped, and have since remained stubbornly high. Unfortunately, workers have benefited …
House price rebound will prove fleeting The ongoing rebound in house prices is living on borrowed time. With affordability extremely stretched and the economy poised for a sharp downturn, we’re sticking to our forecast that house prices will fall another …
The collapse of First Republic Bank is no big surprise – it had been teetering on the edge since suffering $100bn in deposit withdrawals mostly in March – but it’s a timely reminder that banking turmoil will continue to flare up periodically. After …
1st May 2023
Manufacturing outlook weak, but hi-tech revival boosting construction The trivial rebound in the ISM manufacturing index to a still depressed 47.1 in April, from 46.3, contrasts with the more substantial recovery in the alternative S&P Global PMI but …
We expect the Fed to deliver a final 25bp hike… (Wed.) …while the ECB will probably raise the deposit rate by 50bp (Thu.) We think US non-farm payrolls rose by a softer 180,000 in April (Fri.) Key Market Themes With Yield Curve Control (YCC) set to stay …
28th April 2023
Although underlying activity growth rebounded in the first quarter, while wage and price inflation remained too high, we expect the second quarter to bring a sharper slowdown across the board. GDP data show weaker start to year The first-quarter GDP …
The Bank of Canada’s Summary of Deliberations suggests it was closer to resuming interest rate hikes in April than we thought. Nonetheless, as the data releases this week showed a fall in the job vacancy rate and point to a contraction in March GDP, it …
Decent first quarter likely to be followed by contraction The small rise in GDP in February points to healthy first-quarter growth but, with the preliminary estimate pointing to a contraction in March and activity set to suffer in April due to the federal …
The Bank of England’s Chief Economist, Huw Pill, has come under fire this week after saying that everyone in the UK “needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices whether through higher …
All-property yields have stabilised since the start of the year and alongside continued rental growth, that means total returns were more-or-less flat during Q1. (See Chart 1.) But, while the worst is over, the economy is still set for a mild recession, …
Today’s news on wages and inflation should have eradicated any remaining doubts that the Fed will hike interest rates by an additional 25bp next week. According to the Employment Cost Index (ECI), first-quarter private wages increased by 1.2% q/q, with …
Decent first quarter likely to be followed by contraction The small rise in GDP in February points to a healthy first-quarter growth rate but, with the preliminary estimate pointing to a contraction in March and activity set to suffer in April due to the …
Inflation figures suggest 50bp ECB hike next week still likely National inflation figures released today suggest that euro-zone headline and core inflation edged up in April. That adds to the reasons for the ECB to opt for a 50bp hike at its meeting next …
In our view, the role of UK pension funds in deterring firms from listing on the London Stock Exchange has been overstated of late. To the extent that higher valuations are the reason firms find a US listing more attractive, we think there is good reason …
Alongside the publication of our Q2 UK Housing Outlook this week, we held a series of roundtable meetings for clients in London. Here we sum up our thoughts on three key questions which recurred throughout the day: What is the biggest risk to our …
Germany disappoints, while Italy powers ahead National GDP data released so far suggest that it is touch and go whether the euro-zone economy expanded in Q1, though it did avoid a contraction. We expect economic growth to remain very weak in the coming …
Positive growth in Q1 despite slumping domestic demand The increases in GDP in France and Spain in Q1 bode well for the euro-zone aggregate data to be released later this morning. We suspect that activity in both countries will lose some momentum later …
The Bank of Japan predicted that inflation will fall well below its 2% target in FY2025 when it kept policy settings unchanged today. And while it pledged to conduct a review into its policy measures, the results will only be unveiled next year. The …
RBNZ to relax lending rules On Wednesday, the RBNZ unveiled its proposal to ease Loan-to-Value Ratio (LVR) restrictions on mortgage lending by banks. With house prices now 18% below their January 2022 peak, the RBNZ has judged that threats to financial …
Yield Curve Control here to stay for now The B ank of Japan predicted that inflation will fall well below its 2% target in FY2025 when it kept policy settings unchanged today. And while it pledged to conduct a review into the Bank’s policy measures, the …
Export downturn not over yet Export volumes rose for the second consecutive month in March and with PMIs in Japan’s main trading partners rebounding, the further fall in export volumes we had pencilled in for Q2 looks increasingly unlikely. We’ve now …
Economy may not have shrunk in Q1 The end-month data rush only adds to the dilemma the Bank of Japan is facing. While labour market conditions are now easing in earnest, underlying inflation is set to surpass 4% at the national level. On balance though, …
Resilience in activity won’t last The further rise in industrial production and retail sales in March means that the economy may not have shrunk in Q1 after all, but with recessions in major trading partners looming we still expect GDP growth to be weaker …
Labour market loosening in earnest Labour market conditions loosened visibly in March and there’s room for it to loosen further given the recession we’re expecting in the second half. Meanwhile inflation reversed course and increased in April. Our …
We estimate that employment growth continued to trend lower in April, with non-farm payrolls increasing by a more moderate 180,000. That would be the smallest monthly gain in more than two years, but still a healthy enough increase when compared with the …
27th April 2023
We think disappointing global growth will be a headwind for “risky” assets in developed markets (DMs) during the second half of this year. So far, this month has been a tale of two halves . Over the first part of the month, investors looked like they were …
Economy starts the year on a weaker footing The disappointing 1.1% annualised rise in first-quarter GDP indicates that the economy had less forward momentum at the start of this year than previously thought. We continue to expect the drag from higher …
Sentiment fell further in Q1 The RICS Q1 survey indicated confidence fell further in the opening months of the year but remains substantially above the lows seen during the height of the pandemic. However, we expect sentiment to drop further in the coming …
Wage growth in the euro-zone is likely to remain above the level compatible with 2% core inflation this year and only gradually return to a more sustainable level thereafter. For the past year, wage growth has run well above the 3% y/y or so compatible …
Occupier demand ticks up, but further falls in rents and capital values likely After a weak end to 2022, surveyors reported that occupier demand was essentially flat in Q1. All sectors saw an improvement and that suggests take-up will pick-up in Q2. That …
The turmoil in the US banking system is likely to set off the worst decline in Japan’s commercial real estate prices since the Global Financial Crisis by prompting foreign investors to stop buying Japanese assets. In the worst-case scenario, GDP will …
Product demand proving solid, for now Commercial stocks fell last week as production and net imports declined. Meanwhile, product demand remains resilient, but we doubt oil demand can weather the mounting economic headwinds much longer. The EIA’s latest …
26th April 2023
House prices edged up in March and the sharp rise in the sales-to-new listing ratio suggests there are further gains to come. (See Chart 1.) As the improvement has been driven mainly by a collapse in new listings, while buying power is still constrained …
