Refresh this chart in your browser | Edit the chart in Datastream Interest rate setters in the US and the UK may have lowered rates recently, but investors now expect short-term rates to be nearly a full percentage point higher in a year’s time than they did three months ago. These views are reflected by movements in the 3-month Sonia (UK) and 30-day Fed funds (US) futures in the chart above, and contrast with the expected outlook for the 3-month Euro STR (EU), where rate expectations have been falling. A range of factors might explain this divergence, including the outlook for fiscal

Back in March 2022 when the Fed embarked on its second most aggressive hiking cycle ever, we warned that it would not be the first hike that created risk, but that the risks would probably surface after the Fed had delivered its final hike. That last hike appears to have happened: so where are we now? With inflation down and economic activity re-accelerating, the Fed seems set on maintaining rates at current cyclical highs for longer than the market had expected and hoped just a few weeks ago. Despite the abrupt departure from years of zero rate policy, the economy

The ECB announced another hike in interest rates last week, with the main refinancing rate hitting 4.5% and the deposit rate equalling its all-time high of 4.0%. The last time the deposit rate was that high was more than 20 years ago, so soon after the euro’s creation that physical coins were not even in circulation yet. Given the material risks of a recession in the single currency bloc (Fathom judges these to be in excess of 50% over the coming twelve months), the central bank is unlikely to hike much further, and may soon find itself cutting rates. The

The dollar value of the Turkish lira fell as much as 50% in the last three months, before partially recovering. As FX volatility escalates, policymakers have shown little appetite to step in to stabilise the currency. In fact, measures by the central bank, under pressure from President Erdoğan, have actively fuelled the currency’s sharp devaluation rather than stem it. Investors are becoming increasingly bearish towards the lira, as confidence in the credibility and independence of the central bank wanes and relations with the West remain strained. Measures announced this week to compensate local currency deposits against currency fluctuations seem to

For much of the past decade deflation has been the bogey man of the U.S. and many other markets and this was true even as the U.S. Federal Reserve (Fed) began to unwind quantitative easing and nudge Fed funds away from zero in the closing months of 2016. But concerns pivoted in 2017 away from deflation towards a building threat of inflation reflecting the expectations – and ultimate reality – of a surge in U.S. deficit spending at the same time unemployment was dropping to record lows. The prospect of rising inflationary pressures is reflected in a roughly 1 percentage

We have consistently argued that, by giving unprofitable firms a prolonged lifeline, ultra-loose monetary policy has contributed to weaker productivity growth in recent years. New research from the BIS and OECD supports this view; both organisations have found that the share of firms that are unprofitable, or ‘zombies’, has been rising rapidly across advanced economies. The OECD has said that low interest rates may be one of the causes. But what exactly is a zombie? We answer that question in this note. We have also looked at the earnings of more than 10,000 US-listed companies and, using our own zombie

Four decades ago, South Korea was identified as one of the star performers of the global economy. Its stellar performance was a consequence of the Korean government’s drive to promote export-led growth. It escaped the ‘middle-income trap’, which has ensnared so many, close to a decade ago. It provided perhaps the most successful model of all time for emerging markets to follow. But, now the process of rapid industrialisation has run its course, the economy has begun to slow. And the current response of ultra-loose monetary policy is doing more harm than good in South Korea, as across the developed

The price-to-income and price-to-rent ratios are in line with their long-term averages… In 2016 Q4 German residential property prices, adjusted for inflation, were 15% higher than in the first quarter of 2013. Since the beginning of 2015 real residential property prices have risen at an annualised pace of almost 5% per quarter. Refresh the chart in your browser | Edit chart in Datatream But are house prices overvalued? House price-to-income and house price-to-rent ratios offer one way of thinking about the level of house prices relative to fundamentals. Since 2011, house price inflation has exceeded increases in both households’ disposable income and

On Tuesday 9 May, we presented an overview of our Global Economic and Markets Outlook for 2017 Q2 at an event hosted by Thomson Reuters in London. We were joined by former Bank of England policymakers Paul Fisher, Ian Plenderleith and Sushil Wadhwani. Fathom Director Erik Britton began by setting out what, in our judgment, is the most likely outcome for the global economy. Despite wobbles over his initial failure to replace Obamacare, our central scenario sees US President Donald Trump enact a substantial fiscal stimulus package. There is a material pick-up in growth, with the US economy expanding by

Please note this article was written prior to the US-led airstrikes against Syria.  It has been a strong start to the year for developing market equities. Robust capital inflows in the first quarter helped propel the MSCI EM index higher by 11+% – approximately double the return seen in developed markets over the same time frame [1]. It is not just the numbers that makes this an impressive performance. It has occurred at a time when the Fed upped the pace of monetary policy accommodation withdrawal from one 25bp hike per year to one 25bp hike per quarter [2]. As demonstrated