Despite strength of employment, unemployment rises and wage growth moderates The bigger-than-expected 339,000 increase in non-farm payroll employment in May will dominate the headlines, but the employment report was not all positive – with a big drop in …
2nd June 2023
Revising up our GDP forecast for 2023 The activity data released this week suggest that the economy is holding up better than we had been anticipating. GDP growth accelerated from 4.5% y/y in Q4 2022 to 6.1% y/y in Q1 (Q4 of FY22/23). Based on our …
Largest minimum wage hike in 41 years adds pressure on RBA The 5.75% increase in the minimum wage is the largest on record and adds to the case for the RBA to raise interest rates further. The Fair Work Commission today announced that both the minimum …
US product demand remains resilient Oil prices surged on the back of this week’s report, which managed to successfully tear investors’ attention away from the upcoming OPEC+ meeting this weekend. In isolation, there was little to suggest this was a …
1st June 2023
The latest data suggest that Brazil’s labour market isn’t softening as quickly as we and many others (not least the central bank) had anticipated. That’s keeping wage growth high and, while that may help to support growth in Q2, it will probably deter …
Although activity in the manufacturing sector looks to have improved somewhat in May, that was mainly due to stronger growth in some large emerging markets. The outlook for industry remains bleak, with new export orders in particular falling sharply. The …
We think Korea’s inflation fell in May, in line with weaker economic growth (00.00 BST) The US labour market probably loosened further last month (13.30 BST) Watch back today’s Drop-in on the outlook for EM equities on demand here Key Market Themes …
The manufacturing PMIs for May suggest that EM industry has, in aggregate, strengthened in Q2. Nonetheless, with the surveys pointing to further weakness in key DM trading partners, EM industry is likely to struggle in the second half of this year. The …
Recession risks remain high The slight decline in the ISM manufacturing index to 46.9 in May, from 47.1, reinforces our view that the jump in manufacturing output in April won’t be sustained. But the bigger news was the renewed plunge in the new orders …
All eyes on OPEC+ Sunday’s OPEC+ meeting is going to be a closely watched affair amid speculation that Saudi Arabia will push for another oil output cut. Our expectation is that OPEC+ will stick with current output quotas. (Listen to an on-demand …
The re-election of President Erdogan has raised concerns about a possible sovereign default. We think this risk looks low for now, but it would become a bigger threat in the coming years if the current policy mix continues, macro imbalances worsen and …
OPEC+ is unlikely to change its output target at the meeting this Sunday. After all, crude supply is already constrained, but prices have fallen on demand concerns. Accordingly, it is unlikely that further cuts would prompt a large rebound in prices. …
Overview – Poor affordability and a weakening economy will weigh on housing market activity this year, causing home sales to remain low over the next few quarters. While house prices increased in February and March, we expect to see further modest …
Although the economy weathered the cost of living crisis much better than most expected, the full force of the cost of borrowing crunch has yet to be felt. And with it looking as though interest rates need to rise further to quash inflation, we think the …
ISM survey suggest recession risks remain high The slight decline in the ISM manufacturing index to 46.9 in May, from 47.1, reinforces our view that the jump in manufacturing output in April won’t be sustained. But the bigger news was the renewed plunge …
We don’t think that the recent strong gains in Japan’s equity market mark the start of a significant reversal of its decades-long underperformance; we expect it to lag other markets over the rest of this year in local-currency terms and to perform broadly …
Aside from the US stock market – which is being propped up by a handful of big name stocks and a serious dose of AI fever – most risky assets have struggled over the past month or so . (See Chart 1.) We don’t think that owes much to the back-and-forth …
In contrast to the deceleration across the rest of Europe, the rise in CEE yields in Q1 was bigger than in Q4, driven predominantly by the industrial sector. As the yield gap with the euro-zone is still narrow and valuations are more stretched that …
A bumper jump in GDP, but signs of underlying weakness The breakdown of Brazil’s Q1 GDP figures suggests that the economy is not as strong as the staggering 1.9% q/q rise in output would suggest. Even so, the sharp rise in output has prompted us to revise …
The debt ceiling deal constitutes a modest fiscal tightening, principally because it will guarantee the resumption of student loan repayments this summer, but we aren’t worried that the post-deal surge in Treasury debt issuance will push up borrowing …
MPC to keep rates on hold next week Slower growth and inflation could mean MPC is laying groundwork for cuts before long Consensus has come round to our view that rates will be cut in early 2024 We think the MPC will keep policy unchanged at the …
Second-round effects from reopening still in play Investors have become increasingly bearish on the outlook for household spending in China. Onshore-listed consumer discretionary stocks have now reversed almost all of their reopening gains and those …
Growing evidence that UK price pressures are becoming increasingly domestically generated has driven up market interest rate expectations and at one point pushed the 10-year gilt yield up to 4.38% in late May, close to its peak seen after the …
Higher interest rates start to weigh more heavily on bank lending While the £7.3bn rebound in total UK bank deposits in April followed the £16.1bn decline in March and suggests that concerns over the stability of UK banks have faded, the more interesting …
China’s PMI surveys suggest that the economic recovery is ongoing, but the pace of growth has slowed. While a lower reading for construction activity is a negative for metals prices, the persistent strength of the services sector is consistent with our …
Korea set for a weak Q2, BoK still too optimistic While the economy avoided a technical recession in Q1 on the back of a sharp rise in automotive exports , activity data for April released this week showed that Korea’s economic woes are far from over. …
PMIs point to further falls in manufacturing ahead The fall in the South African manufacturing PMI in May leaves it at a level consistent with modest falls in output in the sector. And the collapse in the future conditions component suggests that things …
Core inflation coming down, but won’t stop further ECB tightening May’s decline in euro-zone core inflation to a four-month low left it below the published consensus forecast and was driven in part by lower services inflation. While further gradual …
The renewed decline in mortgage approvals in April will have dashed hopes that the jump in March marked the start of a recovery. Moreover, with mortgage rates now on their way back up, lending is likely to remain weak throughout the second half of the …
PMIs stabilise, but growth to remain tepid The manufacturing PMIs for May across Emerging Europe were either flat, or edged up slightly, providing further evidence that the worst of the regional downturn is probably now behind us. That said, the PMIs …
CoreLogic data published earlier today showed that house prices continue to make gains in May, heightening risks to our long-held view that the housing downturn has further to run. If house prices do stabilise or rise higher, that in turn raises the …
Net lending to property staged a recovery in April, rising to a 10-month high of £1.18bn. Both standing and development lending increased, with the latter now positive for each of the past three months. The pick-up in lending is in line with the Q1 RICS …
Indian manufacturing sector remains resilient India’s manufacturing PMI reading rose in May to a 31-month high and points to very healthy growth in the sector. But the survey also shows that price pressures are well past the peak, supporting our view …
Policymakers warn against selling the yen The yen made headlines this week after breaching 140 against the greenback, hitting 140.93 at one point on Tuesday. That’s the weakest it had been since November last year and prompted Japanese policymakers to …
House prices flattened off in May after a rise in April. But with mortgage rates now on their way back up we suspect that the stabilisation in prices over the last couple of months will soon give way to renewed falls. The -0.1% m/m fall in house prices in …
Sri Lanka’s central bank (CBSL) cut interest rates in a surprise move today but we think further monetary loosening will be gradual as concerns about the external position are likely to persist in the near-term. The decision to cut both the Standing …
Manufacturing sector remains under pressure Manufacturing PMIs declined in most countries in Emerging Asia. Weak demand and elevated inventory levels are likely to continue to weigh on manufacturing output in Asia over the coming quarters. May …
House prices gain traction With house prices having risen for the third month in a row, there is a growing risk to our view that the housing downturn has further to run. Nonetheless, with rising interest rates set to squeeze affordability even more, we …
Inflation and GDP growth have surprised to the upside since April meeting Housing turnaround an upside risk to inflation and inflation expectations Progress on US debt ceiling deal means little reason to wait until July before hiking As GDP growth and CPI …
31st May 2023
Economic momentum sustained at the start of Q2 The continued growth of Russian industrial production and retail sales in April suggests that the strength of activity seen in Q1 continued at the start of Q2. This momentum is likely to be sustained in the …
The US dollar has rebounded in recent weeks as resilient US economic data and renewed hawkish noises from the FOMC have revived the “higher for longer” narrative, shifting relative interest rate expectations back in favour of the US. There is probably …
The April JOLTS data suggest that the gradual easing in labour market conditions continues, which is putting downward pressure on wage growth. Although the job openings rate edged back up to 6.1% last month, from 5.9%, the timelier data from Indeed …
House of Representatives to vote on the Fiscal Responsibility Act late on Wednesday Clients can sign up here for three of our Drop-Ins tomorrow… … these will be focused on euro-zone inflation, OPEC+, and the case for EM equities Key Market Themes While …
Recent gains in the US stock market have been unusually narrow, and we don’t think the conditions are yet in place for a broad-based rally. A striking fact about the recent gains in US equities is that they have been driven by a remarkably small number of …
Financial risks across the major EMs look relatively well contained for the time being but there are some areas of weakness. Most immediately, following President Erdogan’s election victory the prospect of continued unorthodox policymaking in Turkey …
Ajay Banga appears to be well qualified to lead the World Bank Group and is as well-placed as anyone to “mobilise” Wall Street cash to fund climate-related projects. However, progress on reducing global emissions will require more than a stream of climate …
