| USA The Consumer Price Index (CPI) rose 0.2% in October, in line with the median economist forecast. This came in the wake of another 0.2% gain the prior month. Price in the energy segment were flat as declines for fuel oil (-4.6%) and gasoline (-0.9%) were offset by the sub-indices tracking the cost of electricity (+1.2%) and piped gas services (+0.3%) both rose in the month. The cost of food, meanwhile, advanced 0.2% in October, and followed the largest progression in 20 months in September. The core CPI, which excludes food and energy, rose 0.3% for the third month in a row, also in line with consensus expectations. The price of core goods was flat in the month following an increase in the prior month. Gains for used cars/trucks (+2.7%) were offset by regressions for apparel (-1.5%) as well as medical care commodities (-0.2%). The cost of new cars, on the other hand, was flat in the month. Prices in the ex-energy services segment, for their part, moved up 0.3%. The shelter component saw a pickup of 0.4% and was matched by gains for transportation services (+0.4%), and medical care services (+0.4%). YoY, headline inflation rose to 2.6%, matching the consensus estimate but up from the 43-month low of 2.4% in the prior month. The 12-month core measure was also as expected, as it remained at 3.3% in October. The Producer Price Index (PPI) for total final demand edged up 0.2% from September to October as expected by the consensus. This follows a one-tick increase in the prior month (revised upward from a stable print). The core measure, which excludes food and energy, was up 0.3%, one-tick above the consensus forecast. The goods PPI was up 0.1% in October following two months of moderate contraction. Energy fell 0.3% in the month following decreases of 2.8% in September and 1.1% in August. For the services index, prices rose 0.3% in the month, with the largest increase coming from transportation/warehousing (+0.5% m/m). On a 12-month basis, the headline PPI increased by 2.4%, a deterioration compared to the 1.9% observed the previous month and one-tick above the consensus. The core PPI rose from +2.9% in September to +3.1% in October. The Import Price Index (IPI) rose 0.3% in September, more than the median economist forecast calling for a -0.1% print. The headline print was positively affected by a 1.2% increase in the price of petroleum imports. Excluding this category, import prices still rose +0.2%, more than the consensus forecast for a 0.1% increase. On a 12-month basis, the headline IPI rose from -0.1% to 0.8%. The less volatile ex-petroleum gauge moved from 1.7% to 2.2%. Retail sales rose 0.4% in October, slightly more than the +0.3% print expected by consensus. The prior month’s result, for its part, was revised up from +0.4% to +0.8%. Sales of motor vehicles and parts were up 1.6% on a monthly basis and thus strongly contributed to the headline print. Without autos, outlays rose a more mitigated 0.1%, below consensus expectations, as gains for electronics/ appliance stores (+2.3%), food services/drinking places (+0.7%) and building materials (+0.5%) were partially offset by declines for miscellaneous items (-1.6%), furniture (- 1.3%) and health/personal care items (-1.1%). In all, sales were up in 8 of the 13 categories surveyed. Core sales (i.e. sales excluding food services, auto dealers, building materials, and gasoline stations), which are used to calculate GDP, contracted 0.1%, falling short of the 0.3% increase expected by consensus. It is hard to judge the significance of this contraction on the strength of the US consumer, as Hurricane Milton could have played a role in lowering the monthly sales number. As September’s data was also impacted by a Hurricane (Helene), a clearer picture of the health of US consumers will become available after November. Sales at gasoline stations were essentially flat in the month following a contraction in September. Meanwhile, notable contractions were seen in the miscellaneous items, sporting goods and furniture segments. On the flip side, aside from cars, a healthy expansion in outlays at electronics & appliance stores is likely. Sales at restaurants and bars also continued to grow, which suggests spending on services could have remained strong in the month. Industrial production contracted 0.3% in October, a lower decline than the one expected by the economists surveyed by Bloomberg (-0.4%). The prior month’s result, however, was revised down from -0.3% to -0.5%. According to the release of the Board of Governors of the Federal Reserve System, Hurricane Milton and the lingering effects of Hurricane Helene together reduced October [industrial production] growth 0.1 percentage point. Manufacturing output contracted 0.5% in the month, hampered by a 3.1% retreat in the motor vehicles/parts segment. But even excluding this last sector, factory output still fell by 0.4%, the strike of Boeing employees having resulted in a drop of 5.8% in the aerospace category. Utilities output sprang 0.7%, while the mining segment registered a 0.3% increase. The Empire State Manufacturing Index of general business conditions surged from -11.9 in October to 31.2 in November, its highest level since December 2021 and well above the consensus calling for a 0.0 print. The monthly improvement in the index was the strongest ever recorded, excluding the rebound following the pandemic. The jump in this indicator comes as it is one of the first data points to be collected following Donald Trump’s presidential election. The future president’s desire to impose tariffs on exports could have an upward impact on the domestic manufacturing sector, which would have to increase production to meet new demand. Indeed, the new orders sub-index increased from -10.2 to 28.0 during the month, the shipments sub-index moved from -2.7% to 32.5%, while the six months ahead inventories sub-index surged from -1.1 to 11.3. A more favourable demand backdrop did not prevent payrolls to expand at a slower rate (from 4.1 to 0.9). Supply chain pressures picked up in November after easing since September 2023, as measured by the delivery times sub-index (from -3.2 to 3.1). Business expectations for the next six months worsened with the corresponding gauge moving from a 36-month high of 38.7 to a still elevated 33.2. The index tracking investment spending intentions continued to rebound, increasing from 9.7 to 13.4. The NFIB Small Business Optimism Index increased from 91.5 in September to 93.7 in October, a second monthly gain in a row. Despite the result, the index remained well below its historical average. The net percentage of firms expecting an improvement in the economic situation surged from -12% in September to -5% in October. After an improvement in the previous month, hiring intentions remained stable at 15% during the month, matching the previous highs of this year. Net sales expectations, for their part, rose from -9% to -4%. The percentage of polled businesses that planned to make capital outlays in the next three months increased from 19% to 22%, a level that remains far below the long-term average for this indicator (≈29%). While a recovery in investment would be desirable for stronger productivity, this seems unlikely in the short term as financing conditions remain difficult. The uncertainty index surged to 110, its highest level on record, as the survey occurred before the presidential election. Regarding inflation, 21% of firms reported raising selling prices, down from 22% in September. These latest inflationary trends are not what the Fed wants to see. At a speech this week, Fed Chair Powell noted that the economy is not sending any signals that we need to be in a hurry to lower rates, adding that the strength we are currently seeing in the economy gives us the ability to approach our decisions carefully. The inflation data, combined with Powell’s comments appeared to move markets, sending yields and the dollar moderately higher, while taking a toll on equities. Market odds for the Fed to take a pause on rate cuts have surged higher in recent days, with a probability of a little over 40%. Stocks gave back a portion of the previous week’s gains, as uncertainty over the incoming administration’s policies appeared to continue driving the so-called Trump Trade. The potential policy implications for corporate earnings were visible in the wide dispersion of sector returns, with financials and energy shares continuing to benefit from hopes for deregulation and merger approvals. The price of Bitcoin surged by nearly a third (32.46%) since the eve of the election, as investors anticipated looser regulation of digital currencies. Conversely, health care shares fell sharply, the iShares Biotechnology ETF declined 4.79% following news that Robert F. Kennedy, Jr., would be President-elect Donald Trump’s nominee to head the Health and Human Services Department (HHS). Kennedy has been a vocal critic of the pharmaceutical industry and existing public health programs, particularly vaccine initiatives, and as HHS head would oversee Medicare, Medicaid, and other programs accounting for roughly one-quarter of government spending. UK GDP for Q3 has come through, 0.1% QoQ, 1.0% YoY. While this is not much of a miss to consensus, it is down from 0.5% QoQ last quarter, annualised figures, while better than last quarter’s data, are only set to rise by 0.3% to 1%, these are not the robust figures that the Government is hoping for (as one of its five key pledges, Government had promised to make the UK the fastest growing economy in the G7). More encouragingly, business investment was well above consensus, up 1.2% QoQ, 4.5% YoY. Less positively, Industrial and manufacturing production were both down, YoY industrial down 1.8% and manufacturing down by 0.7%. Real GDP per head is estimated to have fallen by 0.1% in Q3 2024, and is flat, compared with the same quarter one year ago. The service sector accounts for most of the weaker growth More than half of that undershoot was accounted for by a huge 2.0% MoM drop in ICT sector output, five of the six volatile sub-sectors of IT saw output fall, with computer programming down 2.6% MoM and publishing activities collapsing 3.6%. More positively, retail grew 0.3% MoM, driven by car sales. Hospitality also had a good month, with output rising 0.5% MoM as did professional services, with output rising 0.7% QoQ. Earnings and employment data for September was released with average weekly earnings (inc. bonus) up in the three months by 4.3%, AWE (ex. bonus) were up by 4.3%. The unemployment rate for September rose to 4.3%, off its August low of 4%. The claimant count numbers fell from October to September from 30.5k to 26.7k, suggesting a rapid rise in the unemployment figures as the autumn progresses is unlikely. The earnings data is going to be closely watched over the next few months as the (still new) Government has been awarding substantial pay increases to parts of the public sector, as well as raising the National Living Wage. That said, annual average regular earnings growth for the whole of the public sector was 4.7%, down on the previous three-month period when it was 5.2%. Moreover, public sector pay across the board (as opposed to settlements in particular industries) remains slightly below that in the private sector (both data sets do not include pensions contributions), although the pathways (public sector rising rapidly, private sector falling) are notable. The employment data, caveated as is normal with the note that the data from the Labour Force Survey is not as dependable as it once was and the whole data series is undergoing a refresh, are up, but not alarmingly. Wider employment data releases, from PMI’s to monthly business monitors and online adverts, all point to a slowing in the employment market, as announcements in the budget are digested and businesses recalibrate their expectations and consequential plans. EU Euro area data kept hopes of a soft landing for the economy alive. A second estimate of GDP from Eurostat confirmed the surprisingly strong 0.4% expansion in the third quarter. In addition, the European Commission projected growth of 0.8% in 2024, although Germany’s economy is expected to contract by 0.1%. Other data showed the labor market remained stable. Employment rose by 0.2% in the third quarter, after increasing 0.1% in the preceding three months. European Central Bank (ECB) policymakers unanimously backed October’s quarter-point interest rate cut, arguing that the disinflationary trend was getting stronger and that it was important to avoid harming the real economy by more than was necessary, according to minutes of the meeting. The ECB acknowledged the decision was also motivated by prudent risk management and provided insurance against downside risks that could lead to an undershooting of the inflation target. The central bank reiterated that decisions would remain dependent on incoming economic data and that it was not pre-committed to a future rate path. In local currency terms, the pan-European STOXX Europe 600 Index ended 0.69% lower, falling for a fourth consecutive week. Concerns about the incoming Trump administration’s trade policies and political upheaval in Germany weighed on sentiment, as did Federal Reserve Chair Jerome Powell’s cautious comments on US interest rates. Major stock indexes were mixed. France’s CAC 40 Index fell 0.94%, Germany’s DAX was little changed, and Italy’s FTSE MIB advanced 1.11%. CHINA New home prices in 70 cities fell 0.5% in October from September, when home prices dropped 0.7% from August, according to the National Bureau of Statistics. October’s decline marked the second month of slowing home price declines and the slowest pace since March, according to Bloomberg. The improvement came after Beijing unleashed in recent months a series of stimulus measures aimed at boosting the housing sector, including reducing mortgage rates, relaxing home buying curbs in big cities, and cutting taxes on home purchases. Retail sales expanded a better-than-expected 4.8% from a year ago, up from September’s 3.2% rise and marked the strongest growth since February. Industrial production rose 5.3% from a year earlier, lagging forecasts and September’s 5.4% increase, amid weaker auto sales. Fixed asset investment remained steady at 3.4% in the January to October period, while property investment in the period fell 10.3%. China’s urban unemployment rate eased to 5%, from 5.1% in September. China’s consumer price index rose a below-consensus 0.3% in October from a year earlier, down from 0.4% in September, largely due to lower food and energy prices. Core inflation, which strips out volatile food and energy costs, increased 0.2%, from September’s 0.1% rise. The producer price index fell 2.9% year on year, more than the 2.5% decrease predicted by analysts and accelerating from September’s 2.8% drop, extending the deflation in factory gate prices that began in late 2022. Chinese equities declined as evidence of persistent deflation and worries about potential US tariffs under incoming US President Trump hurt investor confidence. The Shanghai Composite Index fell 3.52%, while the blue-chip CSI 300 gave up 3.29%. In Hong Kong, the benchmark Hang Seng Index plunged 6.28%. |
| Sources: T. Rowe Price, Wells Fargo, National Bank of Canada, MFS Investments, HandelsBanken. TD Economics, M. Cassar Derjavets. |
