Exports may be weaker than they appear China’s exports fell 14.5% y/y in July, undershooting the analyst consensus. But given the sharp fall in export prices recently, what’s more surprising to us is that export values haven’t fallen even more. On paper, …
11th August 2023
The big swings in Treasury yields recently have sent some ripples through the US stock market. This Update sets out how we think this will continue to play out, for the equity market as a whole and across some particularly interest-rate sensitive sectors, …
Where the US leads, the UK often follows. So the evidence of broad-based, rapid disinflation in the US offers some hope for the UK. Indeed, at 7.9%, the UK is still lumbered with a CPI inflation more than twice the US rate (3.2%). At least July’s UK CPI …
Further CEE disinflation keeps rate cuts on track The July inflation data out of Central and Eastern Europe (CEE) this week suggests that our forecasts for interest rate cuts to arrive across the region over the rest of this year, and in early 2024, …
It is not surprising that Italian bank shares slumped this week after the government announced that it is imposing a windfall tax on the banks. The decision seemed to come out of the blue and to have been cobbled together at the last minute with several …
This page has been updated with additional analysis since first publication Inflation rise means Copom won’t increase the size of rate cuts The jump in Brazilian inflation to a slightly higher-than-expected 4.0% last month won’t stop Copom from lowering …
Unemployment rises, real wages fall While Korea’s labour market remains very tight, figures from earlier this week show it is starting to loosen as the downturn in the economy feeds through in to higher unemployment and weaker wage growth. The …
This page has been updated with additional analysis since first publication. Downturn deepens as borrowers hold back China’s bank loan growth fell to its lowest in seven months in July, while broad credit growth dropped to a record low. We expect further …
Upside risks to inflation still remain The RBI kept the repo rate on hold at 6.50% as expected this week and maintained a hawkish tone amid the recent surge in food prices. The Bank revised up its inflation forecast for Q3 significantly (from 5.2% to …
Consumer price inflation slipped into negative territory in July. But this probably won’t last more than a quarter or two and has less to do with the health of domestic demand than many think. Inflation in services, the part of the CPI basket most …
This page has been updated with additional analysis since first publication. Resurgence in activity unlikely to last The 0.5% m/m rise in real GDP in June and 0.2% q/q increase in Q2 (CE, BoE, consensus 0.1% q/q) confirmed that a recession has so far been …
Wage growth & external demand holding up Data released this week showed that overall wage growth remained above 2% for the second consecutive month as a slowdown in regular earnings growth was offset by a strong contribution from bonus payments as firms …
Households continue tightening their belts Earlier this week, we got further confirmation that household spending in Australia is now in freefall. The ABS’ monthly indicator showed that the slowdown in household spending deepened in June. As a …
Banxico continues to sit on the sidelines Mexico’s central bank chose not to follow its peers in the rest of Latin America and begin an easing cycle, leaving its policy rate unchanged at 11.25% at today’s Board meeting. Concerns about the persistence of …
10th August 2023
Since our last Financial Market Stress Monitor on 13 th May, strains have continued to ease. This abbreviated Stress Monitor takes stock of developments since then. Overall, stress across core financial markets appears about as low as at any point …
With lingering pandemic and energy support measures coming to a close and governments returning one eye to previous fiscal targets, fiscal policy will tighten a little in advanced economies over the coming years. This will contribute to slower growth. But …
We think disinflationary pressures will help the Fed pivot to rate cuts sooner than investors expect, giving a boost to “safe” assets this year and next. US CPI data for July, published today, was largely in line with consensus expectations. (See here .) …
We are unconvinced by Christine Lagarde’s claim that the recent strength of employment in the euro-zone is due mainly to labour hoarding and shifts in the sectoral composition of employment. Instead, we suspect it is mainly due to understaffed firms …
Aramco’s profit slump ≠ austerity The slump in the profits of Saudi Arabia’s state oil company, Aramco, in Q2 has focussed attention on the deterioration in the Kingdom’s budget position. But the authorities appear to be taking as many steps as possible …
Apart from lagging shelter prices, Fed already hit its inflation target The disinflationary pressures continued to build in July, with both headline and core CPI increasing by a moderate 0.2% m/m. Admittedly, the annual headline inflation rate actually …
The stark and unusual contrast between falling credit spreads of high-yield (HY) corporate bonds and rising ones of private-label commercial mortgage-backed securities (CMBS) in the US suggests investors expect the economy there to shrug off lingering …
We think Norges Bank will go through with its plan to raise its policy rate by 25bp next week, to 4.0%, and follow that up with a final hike in September to 4.25%. At its last meeting, in June, Norges Bank raised its policy rate by 50bp, to 3.75%. That …
Bucharest offices have been CEE’s best performing so far this year, as rent growth has accelerated rapidly. Although we expect growth to slow sharply from 2024, constrained supply of prime space and persistently high inflation suggest prime rents will …
The yield of 10-year Japanese government bonds (JGBs) may come closer to the new “just-in-case” cap of 1.0% in the coming months, but we doubt it will settle that high further ahead. Since the Bank of Japan (BoJ) effectively abandoned Yield Curve Control …
After a strong run since April, inflows into EM bond and equity markets have softened markedly in the past few weeks. Inflows into India, in particular, have weakened. Turkey continues to see sizeable foreign inflows, but these are only a fraction of the …
Angola’s recent 40% devaluation of the kwanza will add to inflation pressures and prompt the central bank to tighten monetary policy aggressively, all of which will weigh on near-term growth. The large share of public debt in foreign currency, means that …
Inflation hits fresh record high, CBE has more work to do Egypt’s headline inflation hit a fresh record high of 36.5% y/y in July and, with a fresh devaluation of the pound on the cards in the coming months, it will remain elevated for some time. The …
Decline in inflation in line with central bank’s expectations July’s decline in inflation in Norway was broadly in line with the central bank’s forecast. So Norges Bank is likely to go ahead with its planned 25bp rate hike next week. The decline in …
The RBI kept the repo rate on hold at 6.50% today as expected and maintained a hawkish tone amid the recent surge in food prices. It’s unlikely that the rate hiking cycle will restart. But there is a significant risk of the easing cycle that we expect to …
Market conditions continue to worsen Given the recent rise in average mortgage rates to their highest level since 2008, we are not surprised by the further deterioration in the RICS headline survey figures. And as we do not expect market conditions to …
This page has been updated with additional analysis since first publication. The economy contracted in Q2 and we expect continued weakness in the near-term as elevated interest rates and weak global demand weigh on economic output in the Philippines. …
The data show a small, but limited, divergence in performance between overall class A and classes B and C office space. But that differential appears to have been driven by newly-built trophy space rather than the broader class A grouping. We expect this …
9th August 2023
Inflation pressures picking up, tightening cycle has only just begun The jump in Russian inflation to 4.3% y/y in July provides firmer evidence that the recent build-up of inflation pressures, including from the weakening of the ruble, are now showing up …
Despite oil prices hitting new year-to-date highs, other factors seem to be dominating the effect of rising oil prices on equity, bond, and FX markets. Even if, as we expect, oil prices edge lower over the next couple of years, we think the link between …
Recent interest rate cuts in Brazil and Chile have fuelled talk of a broad-based EM easing cycle and we expect most EM central banks to start cutting rates in Q4 or Q1. We expect those with the highest policy rates (above 10%) to deliver 500bp or so of …
Weak economic activity in developed economies and a stronger dollar will temper gains in most commodity prices over the rest of the year. In oil markets, Saudi Arabia’s output cuts have kept supply constrained while demand in the US and China has held up. …
Even though the financial strains that emerged after SVB’s collapse have dissipated, interest rate hikes have left overall financial conditions in major advanced economies close to their tightest since the GFC, posing downside risks to activity. As …
Sticky services inflation to keep Banxico in hawkish mood Mexico’s headline inflation rate continued to drop back in July, to 4.8% y/y, but with services inflation proving to be sticky, we doubt that Banxico will turn to interest rate cuts until the turn …
Our latest UK commercial property valuation monitor is embedded below: A small rise in property yields in Q2 was not enough to offset a surge in alternative asset yields, particularly the 10-year gilt, and as a result valuations worsened. Looking ahead …
Energy prices will remain historically high over the remainder of this year, albeit significantly lower than their peak in 2022. Supply in the oil market is constrained and demand appears to be holding up well. The natural gas market appears comfortably …
RBNZ to remain on hold Although inflation and wage growth remain strong, they are showing signs of cooling As recession deepens, rate cuts will be on the table in Q1 2024 With inflation coming off the boil and labour market conditions starting to …
This page has been updated with additional analysis since first publication . Services inflation hits 17-month high CPI joined PPI in deflationary territory last month. But this was due to a sharp drop in food inflation caused by base effects. More …
The share prices of US banks have recovered some ground since a low point in May, as concerns about further failures in the industry have abated; Treasury yields have rebounded; and the economy has remained resilient. Even so, we’re sceptical banks will …
8th August 2023
We expect targeted stimulus in China to put a floor under base metals prices in the remainder of 2023. But the slowdown in developed economies (DMs) will prevent significant gains. Prices should start to pick up in 2024 as monetary easing takes hold in …
China’s commodity import volumes fell in July compared to June. Policy support should help lift metals imports over the next few months. And although crude oil imports fell sharply, we think that rising international aviation to and from China will …
Net trade weighed on second-quarter GDP growth Weaker global demand and the fading boost from easing supply shortages took a toll on exports in June, confirming that net trade weighed on second-quarter GDP growth. While the surveys point to further …
Exports set for renewed weakness soon The narrowing in the trade deficit to $65.5bn in June, from $68.3bn, mainly reflected a further slide in imports, with exports little changed. But with the survey evidence suggesting that renewed weakness in exports …
While Paris rents have been flat for some time, there are signs that the post-pandemic rebound in tourism is starting to boost high street luxury retail. And the upcoming Paris Olympics in 2024 will also add to demand, meaning retail rental growth should …
