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Yet more evidence of recession The Ifo Business Climate Index held up better than expected in October but was still extremely low. With other business surveys also persistently weak, we think Germany will experience the deepest recession among euro-zone …
25th October 2022
German Ifo may point towards a deep recession (09.00 BST) We expect Hungary’s central bank to leave its main policy rate on hold (13.00 BST) Clients can sign up here for a Drop-In on the outlook for the euro-zone (15.00 BST) Key Market Themes Given all …
24th October 2022
The outperformance of wage growth for those moving jobs is not a signal that overall wage growth is set to accelerate. The decline in job quits and in the share of firms planning pay rises suggests the recent slowdown evident in most measures of annual …
The dollar looks set to end the week lower against most major currencies after an article today by the WSJ’s often well-informed Fed reporter, Nick Timiraos, suggesting some FOMC officials favour a (somewhat) less aggressive pace of tightening sent …
21st October 2022
Revenues in the hotel sector have recovered to near pre-pandemic levels after being the hardest hit by COVID-19. Although there are few signs yet of momentum slowing, we expect growth in the sector to stall until the end of 2023 as economic weakness …
While interest rates are unlikely to rise as high as investors expected in the immediate aftermath of the “mini budget”, those hoping that the surge in mortgage rates since will be reversed are likely to be disappointed. Admittedly, the peak in Bank …
Consumers shrug off higher interest rates The stronger-than-expected gain in retail sales in August and preliminary estimate of only a small decline in September show that higher interest rates are yet to weigh on consumption, which is another reason to …
This week’s data releases painted a mixed picture of activity: from the good, to the bad, and the just plain ugly. Manufacturing sector holding up well First the good; manufacturing output increased by 0.4% m/m in September, following decent monthly gains …
German economy overtakes Japan’s With the yen weakening to 150 against the dollar this week, we estimate that Germany has overtaken Japan as the world’s third largest economy in dollar terms. (See Chart 1.) Chart 1: Nominal GDP (US$bn, 4Q Sum) Sources: …
Minutes signal RBA not done yet The RBA this week signalled that even though it slowed the pace of tightening at its last meeting, it is not done yet. In a speech on Wednesday, Deputy Governor Bullock showed that the higher frequency of the RBA’s policy …
Higher inflation from weaker yen won’t prompt BoJ tightening Headline inflation remained at a three-decade high in September and will climb slightly higher by early 2023. That said, the Bank of Japan will remain steadfast in maintaining its ultra-easy …
Weaker yen means higher inflation for longer Headline inflation remained at a three-decade high in September and will climb slightly higher by early 2023. That said, the Bank of Japan will remain steadfast in maintaining its ultra-easy monetary policy. …
We expect to see a fall in retail sales volumes in the UK in September… (07.00 BST) … and a rise in Poland over the same period… (09.00 BST) … but we think retail sales values were broadly unchanged in Canada in August. (13.30 BST) Key Market Themes UK …
20th October 2022
Although the extra risk premia on the UK’s sovereign bonds and currency that emerged in the wake of the UK’s “mini”-budget have partly unwound, this doesn’t necessarily mean Gilts and sterling are set to return to where they were before Liz Truss’s …
Relentless fall in sales continues The 1.5% m/m fall in existing home sales in September showed that rising mortgage rates continued to weigh on housing market activity. Given the recent step-down in mortgage applications as mortgage rates approached …
While the UK government’s apparent U-turn on fiscal policy offers some hope of relief for sterling, we think the outlook remains precarious. We continue to expect that sterling will lose further ground against the US dollar in the near term. But while …
Overview – The drag on the economy from CPI inflation being stuck at 10% for a year and interest rates rising to 5.00% will be enough to trigger a recession that involves real GDP declining by around 2.0% from its peak to its trough. What’s more, …
Board will lift FY2022 inflation forecasts but signal below-target inflation further ahead High inflation is triggering larger pay hikes but that won’t last Even a hawkish successor for Kuroda would struggle to tighten during a global recession The …
Unemployment rate will remain low for now Australia’s labour market is starting to sputter but with unemployment set to remain low, the RBA will continue to hike interest rates. The number of employed people rose by just 900 last month, well below the …
Weaker yen an obstacle to deficit narrowing again The trade deficit narrowed from its record high in August, but with the yen weakening dramatically in recent days, any further narrowing of the deficit will likely be delayed. Export values accelerated to …
China’s central bank will probably keep its Loan Prime Rate unchanged… (02.15 BST) …but we think Indonesia’s will hike by 50 bp (08.20 BST) We expect Turkey’s central bank to cut interest rates by 50 bp (12.00 BST) Key Market Themes Although corporate …
19th October 2022
The UK property market has a long history of either causing or worsening recessions. But that history has taught both banks and regulators a lesson. So while higher debt payments, falling property prices and a slump in construction will play a major …
Housing starts back on a downward trajectory September’s decline in starts supports our view that last month’s increase was a one-off and starts will fall further in the coming months. We expect the rise in mortgage rates to near 7% to continue to weigh …
Strength of core inflation points to another 75 bp hike The Bank’s core CPI inflation measures were unchanged in September but, as we expected a decline due to more favourable base effects, that increases the odds of another 75bp interest rate hike next …
The surge in housing starts to a 10-month high in September casts doubt on our view that there is much worse still to come for residential investment, especially as the recent stabilisation of the sales-to-new listing ratio implies that the downward …
18th October 2022
UK headline inflation may have surpassed 10% in September… (07.00 BST) … but CPI inflation in Canada probably dropped back (13.30 BST) We think US housing starts slumped last month (13.30 BST) Key Market Themes The yen ’s latest weakness has pushed its …
Strong inflation will prompt further rapid tightening The much stronger than expected rise in consumer prices in Q3 will encourage the Reserve Bank of New Zealand to hike rates by another 50bp at its November meeting and poses upside risks to our view …
17th October 2022
The weaker economic growth outlook will weigh most heavily on the retail and apartment sectors, where we have made the largest downgrades to our rental growth forecasts. But the relatively small size of those revisions mean the impacts of higher bond …
14th October 2022
A deterioration in the economic outlook and renewed rise in mortgage rates to a 16-year high in September means the housing market is set for a further slowdown. We estimate that mortgage payments as a share of median income rose to 26% in September. …
Despite the hot September US CPI print from yesterday, we still expect Treasury yields to drop back over time. And we think the drop will mostly be driven by falls in the real yield, rather than inflation compensation. Our US Economics Service is the …
Credit conditions already tightening prior to market turmoil The Q3 credit conditions survey doesn’t capture the impact of the market turmoil of recent weeks, with the deadline for responses falling a week before the “mini-budget”. Nonetheless, it shows …
13th October 2022
Growing acceptance price falls are in the pipeline While optimists can still point to limited supply, a fifth consecutive drop in new buyer enquiries in the RICS survey in September has convinced a majority of surveyors that house prices are heading for a …
With a mild recession now built into our forecast, the outlook for commercial real estate performance has worsened. But because this is a relatively small downgrade and it is joined by an expectation that the Fed cuts rates sooner than previously thought, …
12th October 2022
Q3 investment growth outlook still strong Although “core” machinery orders dropped sharply in August due to a crash in non-manufacturing orders, Q3’s average still points to an expansion in non-residential investment growth this quarter, chiming with …
Note: This report has been updated in the 6th paragraph to reflect 11th Oct. comments from BoE Governor Andrew Bailey. Given that the surge in gilt yields that has forced the Bank of England to intervene in the market was initially driven by the …
11th October 2022
Its widely accepted that the jump in mortgage rates from 1.5% last autumn to 6% means that a significant fall in house prices is now inevitable. In this Update we set out how we came to our forecast that prices will fall by around 12% in nominal terms, …
10th October 2022
One result of the rise in near-term interest rate expectations is a deterioration in the outlook for global housing markets. We already expected house price falls in a handful of countries. Now those falls look set to be bigger, while corrections are …
7th October 2022
Halifax confirms that house prices have stalled The 0.1% monthly fall in the Halifax house price index in September echoed the message from Nationwide earlier this week that house prices have now stalled. Given the sharp rise in mortgage rates over the …
August surge largely due to favourable base effects Labour cash earnings jumped in August, but this was largely due to favourable base effects for hours worked and should slow over coming months. Preliminary estimates for August showed overall earnings …
REIS data show rent-free periods dropped back in the first half of the year, hinting at a tightening market. But with occupiers still rationalising their office portfolios, we expect vacancy to tick higher over the next 18 months, which will continue to …
6th October 2022
Against a backdrop of higher mortgage rates, a weaker economy and prices falling earlier than expected, we have cut our forecast and now expect a peak-to-trough fall in house prices of 8%, down from our previous view that prices would drop by 5%. That …
Improving supply chains temporarily boost construction activity The surprise increase in the construction PMI reflected an improvement on the supply side, as easing demand cut delivery times and improved contractor availability. But a slowing economy …
We think the Charlotte office market will continue to outperform the US average, as firms capitalise on the city’s affordability and position as a prominent financial district. As such, even though completions will be strong this year and next, we …
5th October 2022
Demand falls as mortgage rates hit 16-year high The sixth consecutive month of falling home purchase activity in September was driven by a sharp rise in mortgage rates to 6.75% at the end of the month. With a significant easing in credit conditions not …
An upward revision to our 10-year Treasury yield forecast and a widening in spreads have led us to upgrade our mortgage rate forecasts. We now expect the 30-year fixed rate will stay close to 6.5% for the remainder of the year before falling to 5% by …
4th October 2022
Falls in Paris Centre West vacancy are expected to support a further pick-up in prime office rents in the second half of the year. But this will be short-lived, with the deteriorating outlook for employment growth set to weigh on occupier demand and …
Looser-than-expected fiscal policy following the mini-Budget means we now expect Bank Rate and gilt yields to be higher. All else equal, that would push the spread between the 10-year yield and all-property equivalent yields to its lowest since the GFC. …
Capex projections scaled new heights Today’s Tankan survey suggests that while the services sector is benefitting from the subsiding virus wave, the outlook for the manufacturing sector continues to worsen. The Tankan’s headline index for large …
3rd October 2022
Jump in approvals likely a rush to beat soaring rates The surprise jump in mortgage approvals in August probably reflected a rush to lock in mortgage offers as interest rates surged. There is a possibility that could be repeated next month, but …
30th September 2022
