Americas Watch - June 2017
The consensus view on the U.S. economic climate remains positive, but the magnitude of the economy’s performance can vary widely depending on whether this outlook is based on “soft data” (survey/sentiment-based data) or “hard data” (quantitative measures). Near-record levels for consumer and business confidence, small business optimism and stock markets (a.k.a. “soft data”) show a surging U.S. economy, while “hard data” indicators such as GDP growth, wage gains, and business spending, though solid, provide a less ebullient view. A drumbeat of “fake news” and widespread mistrust of the media have likely contributed to this growing cognitive dissonance. This polarization can be observed in the sharp divergence in consumer sentiment between Republican and Democrat respondents. Moreover, following the administration’s challenges in enacting its agenda, many investors have become increasingly skeptical that near-term economic stimulus is in the cards. Will the current discord between “hard” and “soft” data be corrected with a downward shift in investor sentiment or will observed economic reality finally catch up to consumer and business optimism?
Europe Watch - June 2017
As the half way mark of the year draws near, it is an opportune time to reflect on the past six months and look at what hurdles remain for European property. Much attention has been devoted to political events that threatened to halt the European economic recovery. Most key among these was the French presidential election. The result of the May vote was widely welcomed by the international community and financial markets. President Macron is strongly pro the EU, believes in the benefits of free trade, and will attempt to enact much needed supply side reforms. The British electorate returns to the polls yet again on June 8th for a general election. Current Prime Minister Theresa May and her Conservative Party have seen their lead to Labour leader Jeremy Corbyn fall in the run up to the vote. Europe’s largest economy, Germany, will take to the polls in September. CDU’s Angela Merkel has edged out a lead of 10pp. to her opponent, former president of the European Parliament and SPD candidate Martin Shultz. Both candidates offer a pro-European view and in Merkel’s case a familiar calmness which should help keep government bond yields down and affirm investors’ belief in European property.
Asia Pacific Watch - June 2017
Japan is our only true core, en-bloc residential market in the region and following from last month’s coverage of important regional demographic trends, in this month’s Watch report we update our view on the Japanese residential markets. In Q1 2017 the macro-economic situation has generally been quite supportive. Notably, the Japanese external sector continued to flourish, with March trade figures revealing a 12% YoY rise in exports, which was the fourth consecutive month of increases and was in no small part thanks to a 16.4% YoY surge in exports to China. Real GDP in Japan is forecast to remain firm in 2017, but inflation, although positive, is still well below the 2% target. Further stimulus and accommodative monetary policy may still be needed in the next few years, in addition to the structural changes: the most difficult element of Abenomics to implement thus far. Circa 1.4% real GDP growth for 2017 and 1.1% for 2018 (Consensus mean forecasts as of May 2017) is expected to generate positive real estate absorption and both rates of growth are above Japan’s 25-year average growth rate. The biggest support to residential rent growth would be wage increases but this continues to disappoint to date. The Tokyo 23 Wards area saw 0.8% residential rental growth YoY as of March 2017 (IPD/Recruit Index), while Kanagawa Prefecture in Greater Tokyo saw 1.4% growth YoY.
Combined Watch Link