| USA Nominal personal income rose 0.6% in October, twice the rate expected by consensus (+0.3%) and the most in 9 months. The wage/salary component of income moved up 0.5%, while income derived from government transfers jumped 0.7%. Personal current taxes, meanwhile, edged up 0.1%. All this translated into a 0.7% increase in disposable income, the biggest gain recorded since January. Nominal personal spending, for its part, advanced a consensus-matching 0.4% as a healthy 0.5% gain on the services side was only partially offset by a flat reading in the goods segment. As spending expanded at a slower pace than disposable income, the savings rate rose three ticks to 4.4%. This remains significantly below the levels observed before the pandemic (between 6.5% and 8.5%). Adjusted for inflation, disposable income progressed 0.4%, while personal spending crept up 0.1%. In the latter case, the increase reflected a 0.2% gain in the services segment driven by healthcare. Goods outlays came in flat. The headline PCE deflator came in at 2.3%, up from 2.1% the prior month and in line with the median economist forecast. The core index, for its part, rose one tick to 2.8%, a result also in line with consensus expectations. On a monthly basis, the headline index rose 0.2%, while the core gauge increased 0.3%. The core services PCE deflator excluding housing, a good measure of underlying price pressures, advanced 0.4%. On a 3-month annualised basis, it rose from 2.9% in September to 3.5% in October, its highest level in 7 months. After experiencing its biggest decline since August 2021 two months ago, the Conference Board Consumer Confidence Index continued to rise in November to 111.7 from 109.6 in October (revised up from 108.7). The median economist estimate called for a 111.8 print. The monthly increase compounded on the rebound in the previous month allowed consumer confidence to reach its highest level in 16 months but remained below its pre-pandemic level. Consumer assessment of the present situation jumped from 136.1 to 140.9. The share of respondents that considered current business conditions good edged down to 21.3% from 22.0%, while those who felt conditions were bad fell to 15.3% from 16.7%. The proportion that deemed jobs plentiful regressed to 33.4% from 34.1%. Those that said jobs were hard to get declined to 15.2% from 17.6%. On prices, average inflation expectations edged down from 5.2% in October to 4.9% in November. The S&P CoreLogic Case-Shiller 20-City Home Price Index for September rose 0.18% MoM, below the consensus forecast calling for a 0.30% increase. This marks the 19th consecutive monthly advance but a deceleration from the previous months’ growth (+0.33%). Seasonally adjusted, prices were up in 18 of the 20 cities tracked, led by Cleveland (0.98%), Phoenix (0.83%), Seattle (0.81%), and Las Vegas (0.66%). YoY, prices rose 4.57% at the national level. Pending home sales climbed 2.0 % in October on the back of 7.5% in September, the latter of which had represented the largest gain in more than four years. The increase largely exceeded the median economist forecast of -2.0%. Despite the increase in contract signings, the 77.4 index level remains low for data going back more than two decades. As mortgage rates have increased over October and going into November, the strength in pending home sales could be short-lived. Unlike the resale market, the new home market appears to have reflected the rebound in mortgage rates in October. In fact, new home sales fell 17.3% during the month to a seasonally adjusted and annualised rate of 610K, the lowest level since November 2022. This result was well below the median economist forecast, which called for a 725K print. The fall in transactions during the month was compounded by an increase in the number of homes available on the market (from 471K to a multi-year high of 481K), the inventory-to-sales ratio rose from 7.7 to 9.5, a level that is well above the long-term average for this indicator (6.1). Durable goods orders rose 0.2% MoM in October, a result below consensus expectations for an increase of 0.5%. Orders in the transportation category rose 0.5% on increases for nondefense aircraft (+8.3%) while vehicles/parts declined (-0.4%). Excluding transportation, orders advanced a consensus-matching 0.1%. The report showed, also, that orders for non-defense capital goods excluding aircraft, a proxy for future capital spending, decreased 0.2% m/m after gaining 0.3% in September. On a three-month annualized basis, “core” orders were up 1.2%, showing some momentum for business equipment spending heading into Q4. Shipments of non-defense capital goods excluding aircraft, a good proxy of current equipment spending, were slightly better on a monthly basis. Despite the monthly increase of 0.2% in this segment in October, on a three-month annualised basis, shipments were down 1.2%. Cumulatively, the economy remains on a solid footing, which when combined with sticky inflation and elevated trade uncertainties supports the current patient approach adopted by the Federal Reserve over the past few months. The FOMC November meeting minutes released this week reiterated this sentiment, noting that a gradual normalisation of monetary policy continues to be warranted by present economic conditions. Next week’s employment report will offer an important update for the Fed, with consensus expectations calling for 200k new jobs to be created after Hurricane Milton and the Boeing strike weighed on the prior month’s reading. Incoming data will continue to drive the Fed’s decisions moving forward, with market expectations currently pointing towards another 25 Bps cut in December. Stocks recorded another week of gains, lifting the Dow Jones Industrial Average, S&P 500 Index, and S&P 400 MidCap Index to record intraday highs. On Monday, the small-cap Russell 2000 Index hit an intraday high of 2,466.49, eclipsing the record high it had established a little over three years before. Markets were closed Thursday in observance of Thanksgiving Day, although trading was relatively robust in the run-up to the holiday. Markets also closed early on Friday. Domestic policy and geopolitical factors appeared to be large drivers of sentiment during the week. UK Bank of England Money and Credit release data for October, and overall consumer credit rose by GBP 1.09bn (consensus GBP 1.3bn). Mortgage approvals moved up to GBP 68.3k (consensus GBP 64.5k) while mortgage lending was higher than anticipated at GBP 3.44bn (consensus GBP 2.85bn). For those of us who still watch such things, the broad M4 Money Supply was down very slightly by 0.1% (consensus 0.4%), overall the money stock has been remarkably steady since the end of 2022. Consumer credit rose by GBP 1.1bn in the latest month down slightly from a GBP 1.2bn increase in September and below market forecasts of GBP 1.3bn. Digging into these numbers, it can be noticed that consumer credit, such as car dealership finance and personal loans, fell to GBP 0.6bn in October from GBP 0.8bn in September. There was a rise in borrowing through credit cards, which increased to GBP 0.5bn from GBP 0.4bn over the same period. These figures all reflect the ongoing impact of negative consumer confidence, and a reluctance to contemplate spending on big ticket items. There was a significant jump in household deposits, up by GBP 20.2Bbn, the highest increase since December 2020, at least part of this is likely to be due to individuals realizing capital gains on investments ahead of the 30 October where they were (correctly) anticipating a rise in capital gains taxation rates. UK inflation rebounded in October amid rising energy costs, gaining 0.6% from the month before and 2.3% from a year earlier. Inflation was flat on the month in September and rose 1.7% YoY. EU Eurozone headline inflation accelerated by 0.3pp to 2.3 percent YoY, in November, in line with Bloomberg survey estimates. Core inflation remained unchanged at 2.7 percent, with service inflation down by 0.1pp to 3.9 percent, while core goods inflation ticked up by 0.2pp to 0.7 percent. Energy prices declined by 1.9 percent YoY, slightly less than in October (-4.6 percent), while food inflation ticked down an inch from 2.9 percent to 2.8 percentGerman HICP inflation was unchanged at 2.4 percent, below Bloomberg survey expectations at 2.6 percent. National data suggests that the expected strong increase in energy prices was realised, but counteracted by unexpectedly low increase in food prices. The national core measure ticked up by 0.1pp to 3.0 percent. In France, HICP inflation increased by 0.1pp to 1.7 percent, just below Bloomberg survey expectations at 1.8 percent. Italy‘s HICP rose by 0.6pp to 1.6 percent, above survey expectations at 1.4 percent. Spanish HICP headline inflation increased from 1.8 percent to 2.4 percent, in line with Bloomberg survey expectations, but a national measure of underlying inflation decreased by one tenth, to 2.4 percent. Mixed economic data showed that the German economy continued to struggle in the last quarter of this year. Retail sales in October decreased 1.5% sequentially in seasonally adjusted terms, much worse than a 0.5% drop forecast by analysts polled by FactSet. Still, the labor market demonstrated some resilience in November. The number of unemployed rose by a seasonally adjusted 7,000 to 2.86 million, much less than the 20,000 consensus forecast. The jobless rate held steady at 6.1%. The euro slumped to a two-year low against the dollar on Friday morning after preliminary purchasing managers’ indices for November contracted more than expected. The eurozone manufacturing PMI fell to 45.2 from 46 in October while the services component fell from 51.6 to 49.2. That dragged the composite reading down to 48.1 from 50.0. The data fuelled concerns that the European economy is stagnating and upped the odds that the European Central Bank will cut rates by a half-point when it meets on 12 December. Swaps markets now imply about a 45% chance of a 50 Bps cut next month, up from 15% before the figures were released. With economic storm clouds on the horizon as US President-elect Donald Trump mulls broad-based trade tariffs, and with political instability in both France and Germany, markets anticipate that European policymakers will act early to shore up economic growth while warding off an inflation undershoot. In local currency terms, the pan-European STOXX Europe 600 Index ended 0.32% higher, overcoming uncertainty about US trade tariffs and the outlook for interest rates. Major stock indexes were mixed. Germany’s DAX rose 1.57%, but Italy’s FTSE MIB fell 0.70%, and France’s CAC 40 lost 0.29% CHINA Profits at industrial firms fell by 10% in October from a year ago, narrowing from a 27.1% decline in September, the third straight monthly drop, according to the National Bureau of Statistics. The slower decline was partly attributed to the government’s support measures and profit growth in the equipment and high-tech manufacturing industries. The People’s Bank of China injected RMB 900 billion into the banking system via its medium-term lending facility and left the lending rate unchanged at 2%, as expected. With RMB 1.45 trillion in loans set to expire next month, the operation resulted in a net withdrawal of RMB 550 billion from the banking system for November. A sharp increase in local government bond issuance will add to liquidity pressures in the banking system toward the end of the year as Beijing ramps up efforts to stimulate the economy, according to Reuters. With tighter liquidity conditions and threats of additional US tariffs, analysts anticipate that the government will implement further policies to consolidate the economy in 2025. Chinese equities rose as hopes for greater government support offset concerns about potential tariff hikes in the US. The Shanghai Composite Index gained 1.81%, while the blue-chip CSI 300 added 1.32%. In Hong Kong, the benchmark Hang Seng Index was up 1.01%. |
| Sources: T. Rowe Price, Wells Fargo, National Bank of Canada, MFS Investments, HandelsBanken, TD Economics, M. Cassar Derjavets. |
