| US The S&P Global Flash Composite PMI signalled another solid expansion in private sector activity in November, as it rose from 54.1 to a 31-month high of 55.3. New orders (from 52.8 to 54.9) piled up at the fastest pace since May 2022 but that did not prevent a fourth consecutive decline in private sector employment. Inflation continued to ease in the month, with input/output prices rising the least since June 2020 and at a pace below the pre-pandemic average. Business confidence was at its highest since Mary 2022, something respondents attributed to the prospect of lower interest rates, improved economic growth, and more supportive business policies from the new administration in 2025. The manufacturing gauge (from 48.5 to 48.8) rose to a 4-month high but remained in contractions territory. Factory output dropped the most since December 2022, while new orders shrank for the fifth month running. Employment registered its first increase in 4 months. Delivery times, meanwhile, lengthened the most in 25 months, a phenomenon linked to increased purchasing ahead of potential tariffs on imported inputs. The services sub-index (from 55.0 to 57.0) surged to a 32-month high, reflecting a sharp increase in output and new orders. Rather surprisingly in that context, the rate of payroll reduction accelerated Existing-home sales rose for the first time in four months in October, climbing 3.4% to 3,960K (seasonally adjusted and annualised). Contract closings increased in both the single-family segment (+3.5% to 3,580K) and the condo segment (+2.7% to 380K). On a 12-month basis, the total number of transactions was up 2.9%, but seeing how the level of transactions in October 2023 was already depressed, this figure does not accurately reflect the sharp slowdown in the resale market since mortgage rates began to rise. For a better idea of the situation, suffice to say that sales currently stand about 30% below pre-pandemic levels and 40% below the most recent peak reached in January 2021 (6,600K). Higher sales in the month, combined with a roughly unchanged number of listings (1,370K), translated into a one-tick decrease of the inventory-to-sales ratio to 4.2. While this figure is roughly back where it stood before the pandemic, it remained well below its historical average and at a level consistent with tight supply (<5 indicates a tight market for the National Association of Realtors). Housing starts slid 3.1% in October to a 3-month low of 1,311K (seasonally adjusted and annualised), a result well below the median economist forecast of 1,334K. The decline reflected a sizeable drop in the single-family segment, where starts fell 6.9% to 970K. Multifamily starts, on the other hand, rose 9.6% to 341K. The report also showed an 8.8% fall in total housing starts in the southern region of the United States, a decline likely due to the passage of hurricanes Helene and Milton. Lower housing starts during the month translated into a 1.9% decrease in the number of residential units currently under construction (to a 3- year low of 1,465K), a good proxy for production in the residential sector. Since peaking at the end of 2022, the number of dwellings under construction has fallen by 14.4%, a figure that clearly illustrates the impact of rising interest rates on residential construction. Building permits also fell, from 1,425K in September to 1,416K in October, as a 0.5% increase in the single-family segment (to 968K) was more than offset by a 3.0% decline in the multifamily category (to 448K). As a result, the number of authorized residential projects for which construction has not yet begun fell 3K in October to 279K, which remains an elevated level on a historical basis. It’s true that the Trump administration’s promises of deregulation could make life easier for builders, but other elements are likely to continue to weigh on residential construction. Of these, poor affordability is surely the most important, especially as mortgage rates start to rise again. The Conference Board’s index of leading economic indicators (LEI) fell 0.4 point in October to an 8-and-a-half year low of 99.5. October also marked the 32nd consecutive month without an increase in the LEI, the longest sequence recorded since these data began to be compiled in the late 1950s. Six of the ten underlying economic indicators contributed to the monthly decline, led by ISM new orders (-0.18 percentage point), the average workweek (-0.12 pp) and the interest rate spread (-0.09 pp). Historical analysis shows that an annualised drop of 3.5% in the LEI index over six months, coupled with a six-month diffusion index below 50%, is generally symptomatic of a pending recession. Both of these conditions were met in October: The LEI index fell 4.3% annualised over six months and the six-month diffusion index stood at 25%. Fed Board Members Bowman and Cook, though they offered slightly different interpretations of the state of the economy both recommitted to a data-dependent approach to rate setting. Governor Cook presented her view of the outlook, with an emphasis that the disinflation process is well on its way even if the path is occasionally bumpy. Governor Bowman was more pessimistic noting that, progress on inflation seems to have stalled. Markets now expect the Fed’s preferred inflation gauge (the personal consumption expenditure index excluding food and energy) to show another strong advanced in October of 0.3% MoM (3.7% annualised), well ahead of the Fed’s 2.0% target. The NAHB Housing Market Index jumped to 46 during November, the highest reading since April. Builders expressed optimism that a more friendly regulatory environment could be beneficial to operating conditions. While more lenient regulations may increase confidence and help support activity, potential changes to trade and immigration policy represent headwinds for residential construction moving forward. Major stock indexes finished the week higher, recovering some of the previous week’s losses despite some continuing uncertainty around the incoming Trump administration’s policies and escalating geopolitical tensions stemming from the conflict between Russia and Ukraine. Gains for the week were also relatively broad-based, with smaller-cap indexes outperforming large-caps and an equal-weighted version of the S&P 500 Index outpacing its more familiar capitalisation-weighted counterpart. Similarly, the price of Bitcoin continued its post-election rally and notched its third consecutive week with a gain exceeding 10%. With a relatively light economic calendar for the week, much of the focus was on NVIDIA’s third-quarter earnings release. Shares of the chip giant ended the week little changed as investors appeared to be generally satisfied with the results, although the company’s guidance for the fourth quarter was lighter than some analysts expected. Relatedly, the utilities sector outperformed as commentary on NVIDIA’s earnings call seemed to drive optimism around rising artificial intelligence-driven demand for clean energy. Communication services stocks lagged, driven in part by a drop in shares of Google parent Alphabet following reports of the Justice Department filing a proposal to break up the internet search giant. Even with the US presidential election now behind us, there remains a large degree of uncertainty around which policies (namely around tariffs) will come to pass. UK Two data releases have been released this past week: retail sales (October) and consumer confidence (November). Starting with retail sales for October, the print was disappointing. Retail sales volumes are estimated to have dropped by 0.7% in October (market expectations were for a more modest fall of just 0.3%) after a rise of 0.1% in September, although volumes did advance by 0.8% in the three months to October compared to the previous three month period. The monthly fall in sales was driven by the non-food store sector, especially clothing stores that saw a drop of 0.3%. GfK’s consumer confidence figure for November tells a slightly better story on the UK consumer. This metric increased by three points when it had been expected to slip back by one point. The latest reading shows some recovery from the dip in confidence pre-Budget, aided by the further cut in interest rates to 4.75% in November along with wage growth continuing to outpace inflation. Moreover, the notable five-point increase in consumers’ willingness to make big-ticket purchases is encouraging. Note, however, that overall confidence has yet to bounce back to levels observed in the summer. The headline rate of UK inflation (YoY CPI) has seen a notable jump from just 1.7% in September to 2.3% in October. October’s print is 0.1pp above both market expectations and the Bank of England’s latest forecasts. UK inflation has seen a large increase due to a base effect in the electricity and gas component of inflation, which has added 0.57pp to YoY CPI in October. This follows Ofgem’s price cap increasing the average annual bill by GBP 149 and the YoY comparison meaning that the electricity and gas component of inflation is ceasing to drag down headline inflation in a material way. Looking at other non-core elements of inflation, lower motor fuel prices provided a marginal offsetting impact on the headline inflation rate. The data reinforced expectations that the Bank of England (BoE) is likely to keep policy steady for the rest of the year. Markets also scaled back their expectations from three rate cuts to two in 2025. Separately, BoE policymakers were split over the persistence of inflation and the path for interest rates at a meeting of a parliamentary committee held before the release of the inflation data. Governor Andrew Bailey said there were “risks on both sides” of the inflation outlook. EU The search for signals of a eurozone economic recovery in the wake of easing monetary policy goes on. The print showed the composite PMI indicator falling from 50 in October to 48.1 in November, driven by a marked fall in service sector activity. Moreover, future business expectations in the service sector fell even more to a level significantly below its historical average. Manufacturing also deteriorated, and the overall manufacturing PMI has now been below 50 for 29 months in a row. Overall, all output- and employment-related sub-indicators remain below, or much below, the historical average, with the signals from manufacturing sector being particularly weak. The composite employment indicator continues to show resilience, supported by the service sector. While this may be positive for household demand, it also raises questions about productivity, and cost pressures. In addition, the only sub-indicators that are above historical average are price indicators. In Germany, the PMI continue to signal a weak outlook, with small changes compared to previous months and sub-indicators moving in opposite directions. In France, there was a significant drop in service sector activity, a worrying sign for domestic demand. Employment showed resistance, however, improving over last month to a level close to the historical average. As for the eurozone as a whole, all output- and employment-related sub-indicators remain below, or much below, the historical average, with signals from the manufacturing sector being particularly weak. In local currency terms, the pan-European STOXX Europe 600 Index ended 1.06% higher on hopes that the European Central Bank (ECB) could lower borrowing costs in December after purchasing managers’ surveys signalled a deterioration in the economic outlook. Major stock indexes mostly fell. Italy’s FTSE MIB dropped 2.04%, while France’s CAC 40 Index lost 0.20%. Germany’s DAX tacked on 0.58%. CHINA Beijing announced a RMB 10 trillion debt swap to ease the burden on indebted local governments and raised the debt ceiling for local governments midyear for the first time since 2015. While the scale of the debt package is at the upper end of the market’s expectations, the government made no mention of buying unsold property or stimulating consumption. China appears to be unprepared to front-run any move on tariffs and keeping powder dry for the new year. Beijing has unveiled a slew of stimulus measures since late September to boost the ailing housing sector and revive consumer demand. Officials have signaled further easing measures in the near term, including potentially cutting the reserve requirement ratio for domestic banks. However, some analysts believe that policymakers will wait until President-elect Donald Trump takes office in January and US policies become clearer. Chinese banks left their one- and five-year loan prime rates unchanged at 3.1% and 3.6%, respectively. The move was largely anticipated after banks slashed the benchmark lending rates by a greater-than-expected 25 basis points in October, making it cheaper for consumers to take out mortgages and other loans. China’s youth unemployment rate eased for the second straight month since August, when it hit its highest level this year. The jobless rate for 16- to 24-year-olds, excluding students, came in at 17.1% in October, down from 17.6% in September. Chinese equities declined as a light economic calendar and concerns about the incoming Trump administration curbed risk appetites. The Shanghai Composite Index fell 1.91%, while the blue-chip CSI 300 gave up 2.6%. In Hong Kong, the benchmark Hang Seng Index lost 1.01%. |
| Sources: T. Rowe Price, Wells Fargo, National Bank of Canada, MFS Investments, HandelsBanken. TD Economics, M. Cassar Derjavets. |
