February 29, 2024
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UK Housing Shock Has Blown Over Again

  • Interest rate spikes in 2022 and 2023 rattled the housing market, but prompt reversals in market rates dissipated the shocks before they were adequately felt.
  • UK mortgage rates are back to their lows from last spring, and approvals for new loans are higher than then. Lending values are set to turn positive again soon.
  • The risk to economic activity and RPI inflation increasingly appears to have blown over, with housing depreciation troughing and MIPs unlikely to turn negative soon.

By Philip Rush

February 28, 2024
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EA Still Stuck in Stagnation

  • The flash services PMI’s bounce raised a risk that the Euro area’s stagnation might be ending. However, we still believe that is residual seasonality rather than substance.
  • ESI survey data corroborate this sceptical assessment as they were broadly unchanged at levels below the historical average for most sectors and countries.
  • Ongoing labour market resilience in the EEI and unemployment data sustains cyclical support for wage costs. Services and retail price expectations remain historically high.

By Philip Rush

February 27, 2024
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Why Neutral Rates are High

  • Market interest rates still price a mean reversion, albeit with less imminence than earlier this year. Resilient economic data imply the prevailing neutral rate is higher.
  • Slow GDP growth suggests opportunity is low, depressing the consensus view of neutral, but rising time preferences in the post-pandemic regime would also drive rates up.
  • We find reasons for this structural shift and are mindful that another regime change is unlikely outside of a recession. This still provides a hawkish anchor to our forecasts.

By Philip Rush

February 26, 2024
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  • As the war in Ukraine enters its third year, investors should continue to essentially sideline scenarios for the conflict per se and concentrate instead on the implications of increased defence spending in the West in general and Europe in particular.

By Alastair Newton