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We doubt the recent outperformance of equities vis-à-vis government bonds in the US will persist over the next three to six months, given our view that the economy there is heading for a mild recession in the spring of next year. We do think, however, it …
25th November 2022
Research from the Bank of Canada suggests that half of all variable-rate, fixed-payment mortgage holders have now hit their so-called trigger rates, which means their payments will rise. This is one factor weighing on spending, with retail sales volumes …
Foreign visitor numbers jump but services struggle Japan received 461,000 foreign visitors in October (seasonally adjusted), almost double the September figure. This is helping businesses in accommodation and transport, which media reports say are …
The most eye-catching statistic published this week was the net migration into the UK of 504,000 people in the year to June 2022. That’s a record high. It continued the recent trend of net inflows from the non-EU and net outflows to the EU. And it …
The Treasury has started to make payments to the Bank of England’s Asset Purchase Facility (APF) to cover the losses it has racked up because of the Bank of England’s gilt purchases. While this won’t force the Chancellor to tighten fiscal policy …
Nationwide inflation to rise further and drag spending growth Headline inflation in the capital set a new three-decade high in November on aggressive rises in food inflation excluding fresh food and industrial goods inflation. The upshot is that …
Tokyo prices point to further rises in nationwide inflation Headline inflation in the capital set a new three-decade high in November on aggressive rises in food inflation excluding fresh food and industrial goods inflation. The upshot is that nationwide …
24th November 2022
The big surprise so far this year has been the resilience of housing starts which, despite falling from their 10-month high of 300,000 annualised in September, remained at a relatively strong 267,000 in October. While developers have largely shrugged …
Small improvement in business climate won’t prevent recession The increase in the Ifo Business Climate Index in November does not change the big picture that the German economy is likely to contract in Q4. November’s uptick in the Business Climate Index …
Inflation to fall alongside November output price index November’s flash PMIs point to further weakness in the manufacturing sector, corroborating firms’ forecasts. At the same time, services activity appears to be struggling due to the rapid rise in …
Downbeat readings reinforce 2023 recession narrative November’s flash PMIs point to further weakness in the manufacturing sector, corroborating other data. At the same time, services activity appears to be struggling under the weight of rising inflation. …
Banks are likely to tighten credit conditions over the next year to protect themselves from house price falls. But their more cautious approach to lending in this cycle means we don’t think they will have to tighten conditions as significantly as in …
23rd November 2022
We expect central banks in Korea, Sweden and South Africa to hike policy rates… …but think Turkey’s central bank will cut rates, and that a RRR cut is imminent in China Client can sign up here for our Drop-In on Asia’s big macro and market stories …
Sales level off, but leading indicators point to declines New home sales have levelled off in recent months, but leading indicators support our view that sales will fall a little further by the end of the year. Looking ahead, we expect stretched …
Despite the resilience evident in the latest round of hard data, our recession tracker models suggest the odds of a downturn next year are still rising. Odds of recession rising Our recession tracker indicators all but guarantee the economy will contract …
We estimate that non-farm payroll employment increased by a more modest 175,000 in November, although that should be sufficient to leave the unemployment rate unchanged at 3.7%. Payroll gains slowing only gradually The pace of monthly gains in non-farm …
The record-low yields on rental properties and fall in house prices we forecast imply poor returns for Buy-to-Let (BTL) landlords over the next few years. Moreover, the jump in mortgage rates means a significant minority of them will see mortgage …
Equipment investment refusing to roll over despite surging rates The solid 1.0% m/m rise in durable goods orders in October indicates that business equipment investment continues to hold up reasonably well in the face of higher borrowing costs, helped by …
With fiscal policy no longer expected to be ultra-loose and some signs emerging that domestic price pressures will ease further ahead, we no longer expect the Bank of England to raise interest rates to a peak of 5.00%. Our new forecast of an increase …
PMIs suggest we’re already in recession While the composite flash PMI improved marginally in November, it stayed firmly below the no-change level of 50.0, which is consistent with our view that the economy is already in recession. However, with domestic …
PMIs suggest we’re already in recession While the composite flash PMI improved marginally in November, it stayed firmly below the no-change level of 50.0, which is consistent with our view that the economy is probably already in recession. The composite …
Recent monthly data from the advanced economies have tended to exceed analysts’ gloomy expectations. This is partly due to an easing of supply shortages, which could offer some further support to output and spending in the near term. However, this …
RBNZ will hike rates above 5.0% The Reserve Bank of New Zealand hiked the overnight cash rate by 75bp as most had anticipated and it now seems likely that rates will peak closer to 5.5% instead of our current forecast of 5.0%. The statement was very …
Italy’s draft 2023 budget confirms that, for now, the new right-wing government is committed to fiscal responsibility. As a result, the risk of turbulence in BTP markets has fallen, but it remains high given Italy’s large public debt and the prospect of …
22nd November 2022
Retail sales struggling for momentum The small fall in retail sales volumes in September appears to have been reversed in October but, more generally, sales volumes have been little changed for the past six months and the low leve of consumer confidence …
Energy price support puts borrowing back on upward trend October’s public finances figures showed that government borrowing is no longer coming in below last year’s monthly totals. And the combination of the government’s energy price support and …
Although we think the yields of high-grade, long-dated government bonds will fall in general in the next couple of years, we expect those of Bunds to fall by less than those of Treasuries, as comparatively sticky inflation in the euro-zone keeps monetary …
21st November 2022
High oil prices have led to a recovery in US oil investment this year. But US crude production gains have been tempered by rising business costs and an emphasis on returning profits to shareholders. We expect the situation to be similar next year, with US …
Headline inflation shot up to 3.7% y/y in October , the strongest since December 1990 while inflation excluding fresh food and energy rose from 1.8% to 2.5%. Although this puts inflation well above the Bank of Japan’s target, the case for tightening is …
Rising mortgage rates cut sales A renewed rise in mortgage rates led to the largest month-on-month decline in existing home sales since February. As the impact of higher rates continues to feed through in the coming months, we expect sales to fall further …
18th November 2022
As the dust settles on this week’s Autumn Statement, we take a step back and answer three key questions. (Clients can catch up on our detailed analysis and our Drop In webinar following Thursday’s fiscal event here and here .) With the economy entering …
Although the data this week showed renewed rises in the annual rates of CPI-trim and CPI-median inflation in October, our calculations show that the timelier 3-month annualised measures both declined. That could persuade the Bank of Canada to drop down …
The cost-of-living crisis will have an impact on UK high streets for much of the next year. That will not be helpful for retail property rents, although given they are starting from a low base, we think the sector will avoid the meltdown of the pandemic …
The October inflation data highlighted a contrast between the US and Europe, with core price pressures easing materially in the US but staying stronger in the euro-zone and UK. We think this will be an enduring feature of relative inflation prospects in …
Media blaming weak yen and virus for Q3 GDP fall The economy shrank by 0.3% q/q in Q3 due to a surge in real imports, as well as disappointing private consumption and investment growth. Some media outlets have blamed the weak yen and COVID for the …
Only a temporary halt to the downward path The 0.6% m/m rise in retail sales volumes was larger than both we (0.0% m/m) and the consensus (+0.2% m/m) had expected. Sales volumes were probably supported by the reversal of bank holiday effects in October. …
Bank of Japan to maintain policy despite soaring inflation Headline inflation remained set a new three-decade high in October and will remain near those highs this quarter. That said, the Bank of Japan will remain steadfast in maintaining its ultra-easy …
17th November 2022
In his Autumn Statement, the Chancellor, Jeremy Hunt, appears to have pulled off the tricky task of reassuring the financial markets of the government’s fiscal discipline while also managing not to deepen the recession. Our economic forecasts suggest he …
Japan’s headline inflation probably rose to 3.5% in October (Thu., 23.30 GMT) We think UK retail sales volumes were flat in October (07.00 GMT) We suspect Chile’s GDP contracted by 0.3% q/q in Q3 (11.30 GMT) Key Market Themes The market reaction to …
Our current view is that we see a mild recession in H1 2023, but if we were to see a more substantial drop in GDP, we think the extra downside impact would be felt most in the apartment sector. Indeed, if GDP were to fall by an additional 1% …
Weak builder confidence points to further declines in starts Single-family starts fell to 855,000 annualised in October which was much stronger than what was implied by the low level of homebuilder confidence. We expect further declines in new home sales …
Chancellor satisfies the markets and helps the economy when it needs it The £55bn (2.0% of GDP) tightening in fiscal policy announced today by the Chancellor, Jeremy Hunt, appears to have been enough to satisfy the financial markets. What’s more, he’s …
Deficit to narrow by end-2022 The trade deficit widened but stayed below the record high in August, but with the yen strengthening significantly in recent weeks, the deficit should narrow later this quarter. Export values rose by a slower 25.3% y/y …
Yen rally to help narrow trade deficit The trade deficit widened but stayed below the record high in August, but with the yen strengthening significantly in recent weeks, the deficit should narrow later this quarter. Export values rose by a slower 25.3% …
Weak new home sales weigh on housing starts The plunge in new home sales in Toronto in September points to further falls in housing starts, although there are at least some signs that the worst may be behind us for home sales and that the pressure on …
16th November 2022
We suspect the underperformance of US equities that has accompanied the US dollar’s slump so far this month will become a feature from mid-2023, as the currency eventually comes under sustained pressure. Since the end of October, MSCI’s USA Index has …
The negative correlation between the US dollar and the price of oil has reasserted itself in recent months, and we think it will persist as the looming global recession pushes the dollar higher and oil price lower. Although the price of oil hasn’t risen …
The small increase in vacancy in Q3 supports our view that the rental market is turning a corner and makes us increasingly confident in our call that rents will fall next year. Conditions remain tighter in the homeowner market. But higher interest rates …
