BSP on a knife edge The Philippines central bank (BSP) hiked interest rates at an unscheduled monetary policy meeting on 26 th October, and at the time warned the upcoming data on GDP and inflation (both published this week) would be crucial in deciding …
10th November 2023
Limited fiscal impact from grain scheme extension The latest batch of state elections in India kicked off this week. Voting started in Chhattisgarh and Mizoram on Tuesday and voters will go to the polls in Madhya Pradesh, Rajasthan and Telangana over the …
It’s been a busy week in politics on the Iberian peninsula. In Portugal, a snap election has been announced for March 2024 after Prime Minister António Costa was forced to resign amidst a corruption investigation. And after months of negotiations, Spanish …
Resilience of export volumes unlikely to last China’s exporters are doing better than the headlines suggest. Most analysis focuses on what is happening in y/y terms to export values – they have been contracting for six months. Less widely understood is …
The fall in Brazilian inflation to 4.8% y/y in October confirms that the mini inflation cycle has now topped out. Inflation will continue to fall in the coming months, paving the way for further interest rate cuts. That said, we expect inflation to remain …
Flows out of EM bond and equity markets have eased since early October, but we think the recent dollar weakness which has helped to support capital flows into EMs is unlikely to continue. The good news is that current account deficits have narrowed in …
One and done for the RBA The main event this week was the RBA delivering a widely-anticipated 25bp rate hike at its meeting on Tuesday. Our assessment is that the increase in the cash rate is essentially something of an insurance policy, aimed at ensuring …
This page has been updated with additional analysis since first publication. Jump in inflation not enough to prompt another rate hike Despite the unexpected jump in Norway’s headline and core inflation rates in October, we still think the Norges Bank is …
This page has been updated with additional analysis since first publication. Recession or not, economy not weak enough to quash price pressures The Q3 GDP data will spark a big debate about whether or not a recession has just begun (the published growth …
Even though we expect the S&P 500 to end 2024 at a much higher level than it is now, we doubt it will build on its recent gains over the coming months given the outlook for the economy. The story for much of this year has been the surprising resilience of …
Banxico remains hawkish, but may be starting to contemplate cuts Mexico’s central bank sprung no surprises and left its policy rate at 11.25% at today’s Board meeting and the accompanying statement retained its hawkish bias. That said, there was a very …
9th November 2023
High carry EM currencies have rallied as US bond yields have fallen back and risk sentiment has improved, but we still expect most of these currencies to come under renewed pressure in the coming months. Since the peak in 2-year Treasury yields on 18th …
While the US dollar has bounced back a bit this week, its struggles over the past month or so are in some ways similar to the lead up to its sharp fall in Q4 of last year . But we think a comparable slide over the coming months looks unlikely . After …
Following the release of our new analysis on real equilibrium interest rates (R*) last month, we held an online Drop-In last week and in-person Roundtable events with clients yesterday to discuss our findings. This Update answers several of the questions …
Governments across Central and Eastern Europe (CEE) need to deliver significant fiscal tightening over the coming years to prevent public debt ratios from grinding higher. The risk of an imminent fiscal crisis across the region looks low relative to many …
Shortly after the release of the October CPI report, our US Economics team held a client briefing all about the October report and the inflation and growth outlooks and how they’ll shape Fed policy. They answered client questions and addressed key issues, …
Saudi’s FDI revision paints a slightly better picture The Saudi Press Agency released a statement on Tuesday revealing that foreign direct investment (FDI) into the Kingdom has been much stronger than previously thought. But there is still work to be done …
The bankruptcy of WeWork in the US was a predictable end to a long-running saga. Its effects on office markets will not be systemic, but they will reinforce existing weaknesses and pile more bad news on the sector just at the wrong time. The announcement …
The US dollar’s struggles over the past month or so are reminiscent of the lead up to its sharp fall in Q4 of last year, but a similar slide over the coming months looks unlikely. Instead, we continue to think that the greenback will muddle through, …
Persistent balance of payments strains brought pressure on some of the region’s non-oil producing countries who employ fixed exchange rate regimes. FX reserves have been depleted to support currencies and, in some cases, these are insufficient to cover …
Protests against a large copper mine have raged in Panama over the past few weeks. If mine production ceased, there would be noticeable impact on global supply but the risk of this happening is small. The mine is a key part of Panama’s economy and is only …
Higher services inflation to keep Banxico in hawkish mood Mexico’s headline inflation rate dropped to a 32-month low of 4.3% y/y in October, but the fresh rise in services inflation will alarm officials at Banxico. We doubt this will prompt a restart to …
GDP growth appears to have all but stalled in Q3 but that was after a very strong first half. There are mounting signs that a virtuous cycle is forming between wages and prices. This is making the Bank of Japan increasingly confident that it can steer …
Bank lending data from the major advanced economies confirmed that lending was very subdued in September and the latest bank lending surveys show that banks have since tightened their lending criteria further. With demand for loans also falling, the drag …
We have raised our gold price forecast to reflect the current heightened geopolitical risk. We think the price will rise further next year as the limited fallout from the conflict won’t prevent the US Fed from starting to cut interest rates in 2024. Our …
An opposition win in Taiwan ’ s upcoming presidential election could lead to a complete or partial reversal of the economic sanctions that China has imposed on Taiwan ’ s economy during Tsai Ing-wen ’ s presidency. The restrictions on tourism are the …
GDP rebounded strongly in the third quarter of the year but we don’t expect this strength to last as high interest rates and weaker global growth lead to renewed economic weakness in the near term. According to the data published today, GDP rose by 3.3% …
This page has been updated with additional charts and analysis since the first publication. Deflationary returns but is unlikely to persist CPI slipped back into deflationary territory last month. This was mostly due to a drop in food inflation. But core …
A tentative improvement The past prices balance remained deeply negative in October contradicting the 1% m/m increases in house prices recorded by both Halifax and Nationwide. But a recovery in buyer enquiries suggests the decline in mortgage rates since …
8th November 2023
The ECB’s recent decision to leave interest rates on hold, and its associated communications, confirm that its tightening cycle is now almost certainly over. But despite inflation having fallen sharply, we believe the strength of the labour market, …
Given our pessimistic view of the economy in the US, we think that equities there will fare quite poorly in the near term. But the biggest components of the S&P 500 might hold up better. Equities have bounced back sharply over the past ten days, with the …
The recent weakening in employment, easing in wage growth and signs that households are saving more and spending less have provided more confidence that higher interest rates are working. But we think that the restraints on UK labour supply and sticky …
NBP pauses easing cycle, interest rates to stay high in 2024 The National Bank of Poland (NBP) surprised most analysts in pausing its easing cycle today, and we think that the scope to deliver further interest rate cuts over the coming year is quite …
The splintering of the world economy into competing US and China-aligned blocs is dominating the macro and financial and commodities markets outlook. But how is this fracturing process evolving, which parts of the economy are most vulnerable, and what do …
Business investment had so far been resilient to higher interest rates, but growth stalled in the third quarter and there are three reasons why we think that’s a sign of things to come. First, the boost from surging manufacturing structures investment has …
NBR yet to show signs of a dovish pivot The National Bank of Romania (NBR) left its policy rate on hold again at 7.00% today, and offered little evidence to suggest it is considering the start of an easing cycle just yet. We currently expect an easing …
Our latest UK commercial property valuation monitor is embedded below: A small rise in property yields in Q3 was not enough to offset a surge in alternative asset yields, particularly the 10-year gilt, and as a result valuations worsened. Looking ahead, …
Mortgage applications bottom out After their weakest month in 28 years, there were signs that mortgage applications for home purchase bottomed out at the end of October. Mortgage applications for home purchase dropped 9.1% m/m across October as a whole, …
Despite the steepest crash in commercial property values on record, the credit risk and asset quality of European banks’ commercial real estate (CRE) lending is holding up well. Further declines in values mean there could be a further deterioration, but …
This page has been updated with additional analysis since first publication. Sales fall further and more weakness ahead Euro-zone retail sales fell in September and, in our view, will remain weak in the coming months as the economy falls into recession. …
The Vaca Muerta shale formation will alleviate some of the pressure on Argentina’s fragile balance of payments position by substantially reducing the country’s gas import bill and raising oil export revenues. While this is good news for the crisis-ridden …
One factor that may have contributed to higher Treasury term premia, as posited recently by the Treasury Borrowing Advisory Committee in connection with the Quarterly Refunding, is a shift in the correlation between US government bonds and equities. We …
7th November 2023
Activity in the euro-zone’s construction sector is declining and the outlook is poor. The latest surveys suggest that construction output will decline by up to 2% q/q in Q4. Given the tightening of financial conditions over the past few years, the …
Italian households have been the main net purchasers of Italian government bonds recently and we suspect that they will buy a lot more in the coming months. However, the sustainability of Italy’s debt will ultimately depend not on the behaviour of any one …
Despite some differences in the monetary policy outlooks for Australia and the US, we doubt 10-year yields in the two economies will diverge much. Earlier today the Reserve Bank of Australia (RBA) made what looks likely to be one of the last moves in the …
Growth in Costa Rica is likely to slow by more in 2024 than officials currently expect amid weaker growth in the US, high commodity prices and tight fiscal policy. Further ahead, though, a burgeoning medical goods sector, robust FDI inflows and the …
The rise in house prices in October was a challenge to our long-held view that high borrowing costs will cause them to drop further. The resilience of prices in part reflects longer mortgage terms, which are reducing mortgage payments. And a tight labour …
The recent stickiness of the Fed’s preferred measure of ‘supercore’ inflation mainly reflects temporary factors rather than ongoing tightness in the labour market. The upshot is that we still expect a decline in inflation for PCE core services ex-housing …
Higher profitability has helped to boost EM banks’ financial positions over the past year and reduced the tail of weak banks that might struggle to cope with rising loan losses on their balance sheets. The overall EM picture looks strong, but pockets of …
