South Africa: SONA or SO-NO? The declaration of a state of disaster in South Africa’s State of the Nation Address (SONA) over the deepening energy crisis has grabbed the headlines. Yet, in the small print, there were signs of a meaningful shift away …
10th February 2023
The surge in employment and rise in hours worked in January suggest that economic activity continued to expand at the start of 2023 and present clear upside risks to our forecasts for GDP growth. Nevertheless, we disagree with the market-implied view …
The US dollar is set to end the week a touch stronger against most currencies, adding to its gains last week. But, aside from the Japanese yen round-tripping on news over the next BoJ governor, it’s been a relatively quiet week for the greenback – not …
Core inflation worries prompt hawkish response This week’s central bank communications suggest that worries about strong underlying price pressures are putting policymakers in a more hawkish mood than we had anticipated. Admittedly, Peru is something of …
Given that US economic outperformance has tended to coincide with a stronger dollar, we suspect a “soft landing” in the US economy would provide a favourable backdrop for the greenback, if it also meant that growth in the US remained more resilient than …
It was a fairly quiet week in commodities markets, although oil prices rose on concerns about earthquake-related disruption to exports from the Turkish port of Ceyhan and Russia’s announcement of a 0.5m bpd cut to production in March. By contrast, the …
We think annual US core CPI inflation fell to 6.1% in January… (Tue.) …while CPI inflation in the UK declined to 10.2%, from 10.5% in December (Wed.) We think Q4 GDP growth weakened in Colombia, Hungary, Romania, and Israel Key Market Themes Kazuo Ueda …
We think stock markets in several commodity-intensive countries will benefit from China’s ongoing reopening, which, in our view, will mean commodity prices rise further by the end of the year. The end of the zero-COVID policy and a renewed focus on …
Markets have continued to swing round to the Fed’s view that rate cuts are unlikely this year. We still believe that those cuts are coming, however, as economic growth disappoints and core inflation falls more rapidly than the Fed is expecting. Markets …
Overview – Housing market activity is likely to recover only gradually from its current lows, which means we think 2023 will be the weakest year for sales since 2012. Affordability will remain stretched by past standards, especially in the first half of …
Worse still to come for exporters China’s exports boomed throughout much of the pandemic with global consumers, stuck at home and flush with cash from fiscal transfers, spending more on Chinese-made goods. But the unwinding of those pandemic …
Confidence still near historic lows, despite recent rebound The further modest rise in the University of Michigan consumer sentiment index in early February still only left it in line with its average level during the depths of the financial crisis in …
Surge in employment eases recession fears The surge in employment and rise in hours worked in January suggest that GDP growth will be stronger than we anticipated this quarter. However, the decline in wage growth means that unexpected strength is unlikely …
Almost three years on from the pandemic, only middle-income households are yet to recover financially. In the face of a looming downturn, we expect this will drive growth for discounters as middle-income households trade down their spending habits, …
The UK dodged a recession in 2022 but it won’t be so lucky this year. That’s why we expect the biggest wave of corporate insolvencies since the Global Financial Crisis. UK Economists Paul Dales, Ruth Gregory, Ashley Webb and Olivia Cross held a briefing …
A plunge in credit spreads in recent months suggests to us that there is now limited scope for corporate bonds to outperform government bonds over the next couple of years, even if the global economy holds up relatively well. And if we are right about …
Philippines is the outlier In most of the region inflationary pressures are continuing to ease and central banks are preparing to bring tightening cycles to an end. (See here .) A key exception is the Philippines, where a jump in headline inflation to a …
Further thoughts on Turkey’s earthquake disaster The earthquake that hit Turkey and Syria this week, killing more than 21,000 people, is a human tragedy and our thoughts are with everyone affected. It’s still too early to fully assess the macroeconomic …
Labour market strength eases recession fears The surge in employment and strong rise in hours worked in January suggest that GDP growth will be stronger than we anticipated this quarter. However, the decline in wage growth means that unexpected strength …
It doesn’t really matter if the economy was in recession last year or not (although according to the technical definition it was not). (See here .) Two other factors are more important. First, recession or no recession, the economy is weak. Real GDP …
First impressions are important because of the primacy effect which means they are, apparently, stored more easily in the long-term memory. That may be why Erik Thedéen used his first meeting as Riksbank Governor to spring a hawkish surprise this week, …
Hawks singing the same tune At February’s ECB meeting, policymakers were unwilling to commit to raising interest rates further beyond the promised 50bp hike in March. But their comments this week show a clear intention to do so. Table 1 summarises some …
The raft of EM central bank meetings over the past couple of weeks reinforces the view that monetary tightening cycles have now drawn to a close or are very close to doing so, several months earlier than in their DM counterparts. Policymakers in some EM …
Some of the moves in China’s financial markets that followed its rapid reopening – including a rise in equity prices, higher bond yields and stronger renminbi – have unwound in the past couple of weeks, but we think they will resume before too long. …
CBR changes the script as inflation risks mount Russia’s central bank (CBR) left rates on hold at 7.50% today but its communications were far more hawkish than expected as it talked about a further build-up of inflation risks and the possibility of hiking …
The main development of the week happened in the past few hours: the reported nomination of Kazuo Ueda as the next BoJ Governor. Our initial response is here . While analysts and investors are looking for clarity on Mr Ueda’s views, there is little to …
Credit growth is bottoming out After slowing last year, bank loan growth jumped to a 10-month high in January. After accounting for seasonal effects, broad credit growth looks to have ticked up too. We expect the recovery to continue in the near-term as …
Credit growth is bottoming out After slowing last year, bank loan growth jumped to a 10-month high in January. Broad credit growth looks to have ticked up too after accounting for seasonal effects. We expect the recovery to continue in the near-term as …
Recession may come this year as resilience recedes The economy escaped a recession in 2022 by the skin of its teeth (£77m to be precise). But with the full drags from high inflation and high interest rates yet to be felt, we think there will be a …
RBI still cautious on inflation Though the RBI slowed the pace of tightening with a 25bp hike to the repo rate (to 6.50%) this week, the tone of the communications was more hawkish than we had anticipated. The slight rise in the 10-year bond yield …
The nomination of Kazuo Ueda to lead the Bank of Japan could be read as a sign that the Kishida government is seeking a shift away from ultra-loose policy, but we aren’t fully convinced that this is the case. According to media reports, Japan’s government …
Rate hike next month a near certainty, more could follow The strength of consumer price inflation in January makes it all but certain that the Norges Bank will raise its policy rate at its next meeting in March, most likely by 25bp. And with house …
Economy likely to have rebounded strongly in Q4 The rebound in industrial production in Turkey in December and the strength of retail sales in recent months point to an expansion of GDP in the order of 0.5-1.0% q/q in Q4. Activity will be disrupted this …
Avoiding a recession in 2023 will prove harder The 0.5% m/m fall in real GDP in December was worse than expected (consensus -0.3%), but the 0.0% change in Q4 (consensus 0.0%, BoE +0.1%) meant that the economy avoided a recession last year by the skin of …
GDP contracted sharply in Q4 2022 and we think the economy will continue to struggle in the coming quarters as high interest rates, weak external demand and tepid consumption activity drag on prospects. Economic output fell by 2.6% q/q in Q4 after growing …
With trimmed mean inflation surpassing the Bank’s November forecast in Q4, the RBA turned more hawkish when it lifted the cash rate by 25bp on Tuesday. Today’s Statement on Monetary Policy shows that the Bank expects inflation to only touch the top end of …
Economy set to struggle over the coming quarters The economy contracted sharply in the final quarter of last year and we think it will remain weak in the coming quarters as elevated interest rates, weak external demand and tepid consumption activity drag …
Inflation ticking up on reopening effects Factory-gate prices continued to decline last month thanks to falling commodity prices and waning supply chain disruption. But at the same time, a jump in demand for travel and other services following the removal …
Banxico hikes by 50bp, and flags another increase Mexico’s central bank delivered a larger-than-expected 50bp interest rate hike, to 11.00%, today most probably because the recent uptick in services inflation spooked the Board. Another rate hike (probably …
9th February 2023
We doubt the recent renewed outperformance of the “big-tech” sectors of the US stock market will continue in the coming months given the prospect of a mild recession, even if TIPS yields fall again. Despite some disappointing news on the earnings front, …
We expect stretched affordability and rising unemployment to lead to an increase in rental arrears and evictions in the coming quarters, causing rental household formation to turn negative and apartment demand to soften. We have argued since mid-2022 that …
We anticipate interest rate hikes in Mexico and Peru… (Thu.) … but think Russia’s central bank will leave rates on hold (Fri.) UK GDP data likely to show that the economy avoided a recession in 2022 (Fri.) Key Market Themes Shrinking central bank …
Overall services price growth has already slowed but, for the Bank of Canada to loosen policy, we will need to see far more convincing signs of lower inflation in the most labour-intensive service sectors. The Bank has stressed that it is following …
We expect “high-beta” developed market (DM) currencies to weaken against the dollar over the coming months as risk sentiment worsens and, in some cases, yield gaps move against them. But we anticipate a rebound in appetite for risk later this year and …
PIF increasingly leaned on to drive Saudi investment Saudi Arabia’s Q3 balance of payments data showed that the Kingdom’s current account surplus boomed on the back of stronger oil receipts. Most of that surplus is still being recycled by the Public …
A stunning January jobs report has shifted the market narrative around the US economy, but has the fundamental story really changed that much? And does the economic picture justify the market’s bullish start to 2023 or have investors been partying in the …
Slowing jobs growth, a tech-driven slump in net absorption and a strong supply pipeline underline our view that Dublin prime office rents will fall slightly this year. This would mark a sharp correction from the bumper rent growth in 2022 and is more …
The Adani saga hasn’t done much to reduce the comparatively stretched valuation of India’s stock market. In our view, that means there is still scope for it to underperform over the long run. India’s stock market generally avoided the sell-offs seen in …
