Our view that the stock market in China will continue to recover in the coming months even as its counterpart in the US falters ahead of a mild recession there raises the question of how equities elsewhere would fare. This Update attempts to shed some …
2nd February 2023
Rates closing in on their peak, but rate cuts unlikely to come until 2024 While raising rates by 50bps today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but …
EM banks will face an increase in loan losses this year, but the good news is that banking sectors on the whole appear well-placed to absorb these, particularly in parts of Latin America, Emerging Europe and the MENA where capital buffers are high. That …
With inflation and price pressures still high, the Riksbank will probably raise interest rates by 50bp next week. However, in contrast to the market, we think this will probably end the tightening cycle and are bringing forward our forecast for a first …
MPC to mark end of tightening cycle with 25bp hike to repo rate (to 6.50%) next week Slower growth and inflation could mean MPC is laying groundwork for cuts before long Rate cuts to materialise in early 2024, sooner than consensus expects With …
The statement accompanying yesterday’s Brazilian central bank meeting, at which the Selic rate was left at 13.75%, hinted that interest rates may need to stay at their current high level into next year. We recently pushed back the timing of the first rate …
As expected following a blitz of speeches by officials ahead of the blackout window, the Fed raised its policy rate by a smaller 25bp, to between 4.50% and 4.75%, but tempered any hopes of a major dovish shift by maintaining the language in the statement …
1st February 2023
Fed sticks to its guns, but shifting data suggest hiking cycle almost done As expected following a blitz of speeches by officials ahead of the blackout window, the Fed raised its policy rate by a smaller 25bp, to between 4.50% and 4.75%, but tempered any …
Slow refinery rebound continuing to boost commercial crude stocks Commercial crude stocks continued to climb last week as refinery activity remained in the doldrums and net imports rose. We believe that a recovery in refinery activity and higher demand …
Despite the rebound in JOLTS job openings in December, voluntary quits fell slightly and point to a further moderation in both wage growth and PCE core services (ex housing) inflation. Job openings rebounded to 11.0 million in December, from 10.4 …
The manufacturing PMIs picked up in most emerging markets in January, offering hope that the worst for EM industry may have now passed. But activity remains soft against the backdrop of high interest rates and weak global external demand. The aggregate …
The latest manufacturing PMIs suggest that output has continued to weaken, although the pace of contraction is slowing in several economies. Product shortages have diminished further at the global scale, and weakening demand is also allowing price …
Canada has built fewer new homes relative to population growth than other advanced economies, but this alone cannot explain the much larger rise in house prices during the last decade. Looser credit conditions have played the dominant role by far, with …
Another recession signal flashing red The further fall in the ISM manufacturing index to 47.4 in January, from 48.4, suggests that the factory sector has yet to benefit from the improvements in manufacturing prospects in Europe and China. In particular, …
The slowdown that we expect in Brazil’s economy should take some steam out of the labour market, but it looks like it won’t be enough to stop wages from rising at a rapid pace. This appears to be a bigger risk to the inflation outlook than the fiscal …
The Fed will probably deliver a smaller 25bp hike, pushing the FFR to 4.50%-4.75% (Wed.) We think strong recent data will prompt the BoE to raise rates by 50bp, to 4%... (Thu.) …while the ECB will increase its deposit rate by 50bp to 2.5%, as signalled …
Another recession signal flashing red The further fall in the ISM manufacturing index to 47.4 in January, from 48.4, suggests that the factory sector has received little benefit from the recent improvements in manufacturing prospects in Europe and China, …
The minutes to the Colombian central bank meeting last Friday revealed that worries about the growth outlook will bring the tightening cycle to a close soon. We expect the central bank to deliver one final 50bp hike, to 13.25%, at the next meeting in …
Concerns over democratic backsliding and an escalation of the Israeli-Palestinian conflict associated with Israel’s new far-right government won’t necessarily mean that foreign investment into Israel dries up or that the economy suffers in the short run. …
Weak ADP suggests malaise spreading to labour market The muted 106,000 increase in the ADP measure of private payroll employment will add to fears that the malaise in activity has spread to the labour market. Nevertheless, while this supports our estimate …
With interest rates nearing a peak, the next two phases of monetary policy will most probably be rates being held at that peak and then being cut. The Bank of England may soon provide some guidance on both, although ultimately it will be the economy that …
Office-based employment prospects have taken a dive Despite the solid payrolls data for December, there was a clear softening in employment growth in several large metros. But those that have performed the best since the pandemic continue to outperform, …
The January survey data out of China point to a revival in oil demand, but relatively flat metals demand. This is consistent with our view that the recent rally in metals prices is a little premature. We think prices will rise more sustainably later this …
Falling mortgage rates lift housing demand from trough The sharp rise in mortgage applications in January adds to the evidence that housing demand has bottomed out. As mortgage rates continue to trend lower and house prices fall a further 6%, we expect …
Headline inflation to fall sharply, but core rate will be sticky January’s drop in headline inflation should be taken with a pinch of salt because a “data processing problem” meant that the data for Germany had to be estimated and might therefore be …
Unemployment steady as the labour market remains tight The euro-zone unemployment rate was unchanged at 6.6% in December but is likely to increase over the coming months as the economy falls into recession. That said, the increase will probably be …
The shift away from floating-rate to fixed-rate mortgages has meant that it was always going to take longer than in past tightening cycles for the rise in interest rates to feed through to the real economy. This is one reason why we think that once Bank …
Tension across financial markets has come down significantly since November, contributing to the US dollar’s broad-based weakness in that period. Ahead of key central bank meetings this week, this Update assesses whether that trend will continue. 2022 saw …
Headline inflation to fall sharply, but core rate will be sticky January’s bigger-than-expected decline in headline euro-zone inflation should be taken with a big pinch of salt because a “data processing problem” at Germany’s statistics office meant that …
South Africa’s manufacturing PMI remained essentially unchanged, at 53.0, in January, but while the breakdown provided mixed messages, we think that the underlying picture for the manufacturing sector and the broader economy remains very downbeat. …
Signs of improvement The manufacturing PMIs for January rose in most countries and add to evidence from other surveys that, while economies in Central and Eastern Europe may struggle in the early part of this year, the outlook for economic activity is …
Return of tourists will help drive the city’s recovery Hong Kong’s GDP was unchanged in q/q terms last quarter. This was largely due to a further decline in exports but the worst may be over on that front given that global growth is probably close to a …
High mortgage rates maintain downward pressure on prices Given very stretched mortgage affordability, it was unsurprising to see house prices continue to decline at the beginning of 2023. The fall in house prices since their peak last August grew to 3.2% …
Finance Minister Nirmala Sitharaman appears to have successfully demonstrated her long-term commitment of reining in the fiscal deficit while still providing support to the economy in today’s FY23/24 Union Budget announcement. There is a chance of fiscal …
Indian manufacturing remains resilient India’s manufacturing PMI showed signs of moderation in January after defying gravity for several months previously. It should drop further over the coming months as the economy comes off the boil. The manufacturing …
Manufacturing still downbeat and outlook remains bleak Manufacturing PMIs edged up slightly in January but remained subdued overall. We continue to expect weak global demand and elevated interest rates to drag on manufacturing activity in the coming …
Industrial activity steady as services rebound The Caixin manufacturing PMI published today edged up slightly in January as disruption from the reopening wave eased but it remained at a subdued level. Taken together with the official survey published …
The broad-based rally in “risky” assets that got underway in Q4 of last year has continued in 2023 so far, with global equities, developed market (DM) REITs, corporate bonds and industrial metals all off to a strong start to the year. Those gains have …
31st January 2023
While the economic outlook in much of the world has turned less downbeat in recent weeks, the prospects for Sub-Saharan Africa’s two biggest economies have, if anything, got gloomier due to homegrown economic troubles. In South Africa, power cuts – a …
The further falls in the Egyptian pound over the past month will push up inflation and prompt the central bank to deliver more monetary tightening, but there are already signs that the benefits of a weaker currency are materialising. The government …
On the precipice of a recession Our tracking models now suggest the economy is more likely than not to be in recession in three months’ time, supporting the message from the latest surveys and hard activity data that GDP is likely to contract in the first …
We think the rapid economic recovery in China will lead to further gains in equities in China and other emerging markets (EM) this year. Despite some recent weakness, equities in China have rallied since the end of October, as a shift toward living with …
While we expect employment to weaken, it’s happening at a glacial pace. That feeds into our view that once interest rates peak (perhaps at 4.50% up from 3.50% now) they will stay high for all of this year. Employment rose by 27,000 between August and …
We think euro-zone inflation rose slightly in January (10.00 GMT) ISM manufacturing index may have fallen further below 50 in January (15.00 GMT) The Fed is set to hike by 25bp (19.00 GMT) Key Market Themes Although China’s equities have now rallied a …
We think that the euro-zone will enter a recession in the first half of this year and then experience a slow recovery. Our new GDP forecasts show a 0.5% contraction in 2023 and growth of only 0.8% next year. Data released this morning confirmed that the …
Prices down 2.5% from peak and further falls to come A fifth consecutive monthly decline in house prices in November left them down 2.5% from their peak in June on the Case-Shiller index. We think that prices will fall by a further 6% this year before …
Early data indicate that German offices saw the steepest increases in yields on record in late 2022. And we think that with policy rates set to go higher, it is too early to rule out further rises in 2023. That suggests a peak-to-trough fall in German …
