| USA The Consumer Price Index rose a consensus-matching 0.3% in November. This came in the wake of a 0.2% print the prior month. Prices in the energy segment edged up 0.2%, as a 0.4% decline in the electricity segment was more than offset by gains for fuel oil (+0.6%), gasoline (+0.6%) and utility gas services (+1.0%). The cost of food, meanwhile, jumped 0.4%, boosted by a 0.5% gain in the “food at home” component. The core CPI, which excludes food and energy, rose 0.3% for the fourth month in a row, a result in line with consensus expectations. The price of core goods rose 0.3%, marking the biggest increase in 18 months. The increase was supported by gains for new (+0.6%) and used (+2.0%) vehicles, as well as tobacco/smoking products (+1.0%) and apparel (+0.2%). The cost of medical care commodities, on the other hand, cooled 0.1%. Prices in the ex-energy services segment were also up 0.3%. The shelter component saw a 0.3% increase, and the latter was complemented by gains for medical care services (+0.4%), airline fares (+0.4%) and motor vehicle maintenance (+0.2%). YoY, headline inflation came in at 2.7%, up from 2.6% the prior month and in line with the median economist forecast. The 12-month core measure remained unchanged at 3.3%, a result also in line with consensus expectations. Although November’s CPI report came in line with consensus expectations, it still contributed to lowering the level of confidence that inflation in the US will return to its target on a sustainable basis. This is partly due to the fact that a number of components which had contributed greatly to disinflation in recent months now appear to be regaining strength, in a context where the US economy continues to operate well above its potential. PPI data for November was also released, with the headline figure advancing 0.4% in the month, beating expectations which were calling for a 0.2% increase. October’s figure was also revised up by one tick. This translated into a 3.0% YoY growth in November. Core PPI numbers were consensus matching, seeing 0.2% appreciation on the month and 3.4% on an annual basis. Nearly 60% of November’s rise in final demand prices was the result of a 0.7% increase in final demand goods in the index. This was the largest increase since rising 1.1% in February and was largely driven by price advances in final demand foods. Final demand service prices increased by 0.2%. Initial jobless claims for the week ended December 7th jumped 17K to 242K, more than the 221K that was expected. This marks a nearly 2-month high, and the second print in a row that was worse than the consensus estimate (after six where markets were overly pessimistic prior to the release). Continuing jobless claims, a proxy measure of unemployed citizens who qualify for unemployment benefits, rose to 1,886K, which is little changed from the start of 2024 (1,868K). nonfarm productivity, which increased 2.2% in Q3 of this year. This is a slight deceleration from the previous quarter, which printed at 2.5%. Labour productivity in the manufacturing sector advanced 0.9% in the quarter. Output and hours worked increased 3.5% and 1.2%. The NFIB Small Business Optimism index shot up to its highest level in over three years in November, at 101.7. With this 8-point jump, the survey-based index surpassed its 50-year average. Of the ten optimism index components, nine increased while one remained unchanged. The surge in small business optimism was attributed to the federal election results, as business owners are hopeful for favourable economic, tax, and regulatory intervention from the new government. Wholesale trade sales for October were down 0.1% from the revised September figure, and up 0.9% from the same time last year. Total inventories were up 0.2% in the month, in line with expectations, and up 0.9% from the October 2023 level. In nominal terms, inventories reached $905 billion while sales in October were $675.1 billion, resulting in a 1.34 inventory/sales ratio, one that is unchanged from the month prior, as well as the October 2023 print. For a year that was supposed to eke out only modest equity gains, the S&P 500 is up an impressive 27% year-to-date. The return is even more notable given that the Federal Reserve has so far delivered on only 75 Bps of policy easing, or considerably less than the 150 Bps priced by futures markets for 2024 at the end of last year. Even though another quarter-point cut is universally expected CPI and PPI data provided more evidence that progress on the inflation front is indeed stalling and will likely lead to a more gradual path of policy easing in 2025. Most major stock indexes ended the week lower, although the technology-heavy Nasdaq Composite advanced modestly and cleared the 20,000 mark for the first time. Large-cap stocks held up better than their smaller-cap peers as the Russell 2000 Index recorded a second consecutive week of underperformance against the S&P 500 Index. As measured by Russell 1000 indexes, growth stocks posted a third consecutive week of outperformance versus value, thanks in part to gains in shares of Tesla (12.08%) and Google parent Alphabet (8.44%), the latter of which recorded its largest two-day gain since 2015. UK October’s monthly GDP figure was published giving a first indication of the growth that might be expected in the final quarter of the year. The print was slightly disappointing with MoM GDP seeing a decline of -0.1%, which compares to market expectations of a modest 0.1% growth. Sterling has seen a small drop against the Dollar upon publication of the news. A fall in the production sector is the main contributor to October’s negative GDP print, with notable decreases in manufacturing and mining activity. The services sector, which of course makes up the bulk of UK economic activity, saw no growth. The largest positive contributors to services were professional, scientific and technical activities while the most negative contributors to growth were administrative and support services. GfK’s consumer confidence metric took a knock in October as many respondents expressed concerns around potential measures contained in the Budget. However, it is difficult to quantify the exact impact that worries around the Budget may have had on growth in October. A range of production and services sectors reported mixed comments with respect to this. Companies that reported negative impacts on turnover were mainly from manufacturers, wholesalers, retailers, computer programmers, professional services and employment agencies, but there were more positive comments in October from sectors such as wholesalers, real estate, legal services and accountants. EU Looking for signals about policy going forward, the signals were mixed. On the dovish side, the European Central Bank (ECB) press release dropped the sentence to “keep policy rates sufficiently restrictive for as long as necessary”. Lagarde also expressed confidence that disinflation is on tack, noted that “risks to Inflation are now two-sided”, and she confirmed that there was some discussion to consider a 50 Bps cut. On the hawkish side, Lagarde did not take any major step towards more focus on the risks related to slow growth, and she also underlined that domestic inflation remains high. This confirms that inflation remains a concern for the ECB. Lagarde acknowledged slowing momentum in GDP growth as well as in labour demand. However, the press release did not signal any great concerns for the recovery, stating that “Over time, the gradually fading effects of restrictive monetary policy should support a pick-up in domestic demand.” The Swiss National Bank (SNB) surprised markets with a larger-than-expected half-percentage-point reduction on the same day, its biggest rate cut since January 2015. The central bank said it aimed to counter lower inflationary pressure and keep consumer price growth within its defined range for price stability of 0% to 2%. The SNB also lowered its forecast for inflation to 0.3% in 2025, half of what it projected in September. In local currency terms, the pan-European STOXX Europe 600 Index ended 0.77% lower, as investors debated whether the ECB has been easing monetary policy fast enough to support the struggling economy. Major stock indexes, however, were mixed. Germany’s DAX eked out a 0.10% gain, while Italy’s FTSE MIB added 0.40%. France’s CAC 40 Index fell 0.23%. CHINA Exports rose a weaker-than-expected 6.7% in November from a year earlier, slowing from 12.7% in October, and expanded for the eighth straight month. Shipments to the US reached their highest level since September 2022, while exports to Southeast Asia also surged. Imports fell 3.9%, deepening from the prior month’s 2.3% drop. The overall trade surplus widened to USD 97.4 billion from USD 95.72 billion in October. The rise in exports was partly attributed to Chinese firms front-loading goods to the US to avoid potentially higher tariffs when President-elect Donald Trump takes office in January. Inflation data showed that China’s economy remained stuck in deflation. The consumer price index rose a below-consensus 0.2% in November from a year earlier, down from 0.3% in October. Core inflation, which strips out volatile food and energy costs, edged up to 0.3%, from October’s 0.2% rise. The producer price index fell 2.5% YoY, easing from the prior month’s 2.9% drop and marking the 26th straight monthly decline despite Beijing’s efforts to boost domestic demand in recent months China pledged to implement a more proactive fiscal policy and increase the budget deficit in 2025 at the annual Central Economic Work Conference, a high-level meeting in which top officials plan the economic agenda for the next year. Officials also stated that the central government will continue issuing ultra-long special Treasury bonds to fund major projects. However, the readout following the two-day conference did not provide any details, which dampened investor sentiment. Chinese equities lost ground as recent policy announcements underwhelmed investors. The Shanghai Composite Index gave up 0.36%, while the blue-chip CSI 300 fell 1.01%. In Hong Kong, the benchmark Hang Seng Index added 0.53%. |
| Sources: T. Rowe Price, Wells Fargo, National Bank of Canada, MFS Investments, TD Economics, M. Cassar Derjavets. |
