| USA Nominal personal income increased 0.2% in October, in line with the median economist forecast. The wage/salary component showed just a 0.7% gain, the smallest in 10 months, whereas income derived from government transfers edged down 0.7%. Personal current taxes, meanwhile, fell 0.2%. All this translated into a 0.3% increase in disposable income Nominal personal spending, for its part, rose a consensus matching 0.2% in the month. Outlays on goods retraced 0.2%, but this was more than offset by a 0.4% gain in the services segment. As disposable income grew at a slightly stronger pace than spending did, the savings rate inched up to 3.8%, which remained for below pre-pandemic levels (6.5% to 8.5%) The headline PCE deflator come in at 3.0%, four ticks lower than in the prior month and one shy of consensus expectations. It was also the lowest print recorded in 31 months. The core measure, for its port, cooled from 3.7% to a 30-month low of 3.5%. On a monthly basis, the headline index was unchanged. Excluding food and energy, however, it rose 0.2% The ISM Manufacturing PMI remained unchanged at 46.7 in November instead of rising to 47.8 as per consensus. The index thus remained below the SO-point mark separating expansions from contractions for the 13th month in a row, the longest streak in more than two decades. Output (from 50.4 to 48.5) fell back in contraction territory in November, while new orders (from 45.5 to 48.3) contracted for the 15th successive month. Such a long series of declines in bookings hod not been observed since 1982 Sales of new homes slipped 5.6% MoM in October to 679K (seasonally adjusted and annualized), which was below the 721K print expected by consensus. This decline, combined with an increase in the number of homes available on the market (from 433K to 439K), pushed the inventory-to sales ratio up six ticks to 7.8, even further above the indicator’s historical average of 6.1 The S&P Corelogic Case-Shiller 20-City Home Price Index rose 0.7% MoM in September to an all-time high. This was the indicator’s seventh consecutive monthly advance, though the pace has been slowing since May. Prices were up in thirteen of the markets covered, led by Las Vegas (+1.5%), Detroit (+1.3%), Miami (+1.1%), Phoenix (+1.1%), Cleveland (+0.9%), and San Francisco (+0.9%). YoY, prices rose 3.9% at the national level, a third consecutive progression. Although demand remains weak on the real estate market, very tight supply, combined with a strong labour market, is likely to keep driving prices up in the coming months. That said, only modest gains are expected from now to the end of the year, as purchasing power continues to suffer from elevated borrowing costs The Conference Board Consumer Confidence Index climbed from 99.1 in October to 102.0 in November. Consumer assessment of the current situation remained essentially unchanged (138.6 to 138.2), but longer-term expectations increased for the first time after declining for three straight months. The sub-index tracking sentiment towards the next six months did indeed rise 5.1 points to 77.8, though this remained at historically low levels. Accordingly, a higher share of respondents had a positive opinion of future business conditions (from 15.5% to 17.3%) and employment (from 15.3% to 16.1%). These slightly brighter prospects also translated into an increase in the share of respondents who expected their income to improve (from 15.6% to 17.2%), though the proportion remained well below the long-term average. Proportionally more respondents planned to buy a home (from 5.0% to 5.3%), a car (from 10.3% to 11.1%), or major appliances (from 43.6% to 45.5%) in November. Consumers expected inflation to stand at 5.7% for the next 12 months, down two ticks from the prior month and the lowest level since November 2020 According to the latest edition of the Fed’s Beige Book, overall economic activity slowed from October to mid-November, a downgrade from the modest increase reported in the prior iteration of the survey. Consumer spending and manufacturing activity were described as “mixed”, although consumer delinquencies increased slightly, while the outlook for manufacturers deteriorated. Conditions in the real estate sector, meanwhile, “continued to slow”, which allowed inventories to rebuild somewhat in the residential sector. Employment growth was described as “flat to modest” in a context where candidate pools continued to expand. Worker retention continued to improve, and some businesses even reported “reductions in headcounts through layoffs or attrition”. Still, the availability of skilled workers remained const rained. Wage growth remained modest to moderate countrywide, with several respondents reporting less pushback from candidates on wage offers. Again, the situation was different for high- skilled positions, with “some reports of continued difficulty attracting and retaining high performers and workers with specialized skills” At an event at Atlanta’s Spelman College, US Federal Reserve Chair Jerome Powell said on Friday that it is premature to speculate on when the Fed may ease policy, adding that the central bank is prepared to tighten more if it becomes appropriate and that policy is now well into restrictive territory. The Fed chair said it would be premature to conclude with confidence that rate increases are over, though he noted that the economy has not yet felt the full impact of past rate hikes. With the Fed’s blackout period about to begin ahead of its 13 December meeting, Powell appears to be using this opportunity to cool market speculation that rate cuts are in the cards next year Fed Governor Christopher Waller, one of the more reliably hawkish voices on the Fed’s Board of Governors, said Tuesday that if inflation continues to decline over the next three to five months, that the Fed could start lowering its policy rate. Most other Fed officials have stopped short of discussing rate cuts, though most suggest that policy rates have likely peaked. Waller also noted that he is increasingly confident the US economy can achieve a soft landing, saying policy is well positioned. Wednesday’s Beige Book showed that economic activity had slowed since the last report and that discretionary spending had declined as consumers showed more price sensitivity US Secretary of the Treasury Janet Yellen said Thursday that she sees the US unemployment rate stabilizing around current levels and says there is a very good chance that the US will achieve a soft landing. The Fed need not trigger a recession to quell inflation, the former Fed chair said US holiday sales appear to be off to a good start with Americans expected to spend $37.2 billion in online shopping during Cyber Week, the five days from Thanksgiving to Cyber Monday, according to Adobe Analytics, about 5.4% higher than last year Most of the major indexes ended higher for the week, with the S&P 500 Index and Nasdaq Composite rounding out on Thursday their best monthly gains (8.9% and 10.7%, respectively) since July 2020. Falling Treasury yields seemed to continue to boost sentiment, and a broad index of the bond market recorded its best monthly gain since 1985 In terms of data release, the ISM Service index is out on Tuesday. In contrast to the interest rate-sensitive manufacturing sector, the Fed’s tightening cycle has yet to meaningfully dent demand for services. The ISM Services Index dipped to 51.8 in October, consistent with a somewhat slower increase in services spending over the month. But consumers are still spending. In real terms, economy-wide personal services expenditures climbed higher in 20 of the past 21 months. As consumers continue to spend on services, labor challenges have moved to the top of employers’ minds. The employment component of the ISM index barely indicated expansion in October. Recruitment challenges, in turn, appear to be pushing up labor costs and exerting upward pressure on inflation The employment reports is out on Friday. The most recent jobs report provided concrete evidence of labor market softening. The 150K net payrolls added in October was roughly half September’s 297K print. Combined with downward revisions to prior data, October’s outturn solidified a trend decline that reflects a labor market gradually losing steam. Wage growth also continued to cool in October as labor demand and supply move closer toward balance. Average hourly earnings rose 0.2%, the slowest monthly pace in more than a year. On a three-month annualized basis, AHE were up 3.2%, a pace that could be deemed consistent with 2% inflation, if sustained, when factoring in the trend in productivity growth. UK Net mortgage approvals for house purchases in October, an indicator of future borrowing, saw an increase from 43,700 in September to 47,400. This was a notably better print than market expectations (45,300) although this is nearly 30% less than the 2015-2019 average. Both the Halifax and Nationwide House Price Indexes, which incidentally are based on mortgage approval data, have both seen a minor uptick in prices for October (m-o-m) but the continued depressed level of overall mortgage approvals highlights a slow housing market that is likely to persist into next year Bank of England (BoE) Governor Andrew Bailey continued to push back against market expectations for interest rate cuts. He told Daily Focus, a news service, that the BoE “will do what it takes” to reduce inflation to its 2% target, but he added that “we are not in a place now where we can discuss cutting interest rates – that is not happening.” EU Euro area headline inflation eased to 2.4 percent in November from 2.9 percent in October below expectations at 2.7 percent. Core inflation eased to 3.6 in November from 4.2 percent in October below expectations at 3.9 percent. The ease in core inflation was supported by lower price increases in services at 4.0 percent, down from 4.6 percent in October, as well as core goods price inflation easing to 2.9 percent compared to 3.5 percent in October. Energy prices fell by 11.5 percent (-11.2 percent in October) over the past year, while food inflation is still elevated at 6.9 percent (7.4 percent in October) German headline inflation fell to 2.3 percent in November, down from 3.0 percent in October and below expectations at 2.5 percent. In France, headline inflation eased to 3.8 percent from 4.5 percent, again below expectations at 4.1 percent. Italian headline inflation also fell more than expectations to 0.7 percent in November from already low 1.8 percent in October, the expected outcome was 1.1 percent. Lastly, Spanish headline inflation eased to 3.2 percent in November from 3.5 percent in October, with expectations at 3.7 percent. Several countries reported that the decrease was supported by declining energy and travel costs Germany’s Federal Labour Office reported that the jobless rate rose to 5.9% in November, the highest level since 2021, from 5.8% in October. The statistics office said that, in seasonally adjusted terms, the number of people employed was flat compared with September, while rising 0.6% year over year. The number of job vacancies fell. Meanwhile, retail sales grew more than expected in October, increasing 1.1% sequentially, as falling inflation appeared to boost consumer confidence ECB President Christine Lagarde told European lawmakers that the eurozone economy is likely to remain weak for the rest of the year and that job growth may be losing momentum. However, it is too early declare victory on inflation, she said. The central bank may reassess its reinvestments of a pandemic-era asset purchase program earlier than the planned end of 2024, Lagarde said In local currency terms, the pan-European STOXX Europe 600 Index ended 1.35% higher, as a steep decline in inflation and falling bond yields lifted investor sentiment. Major stock indexes rose as well. Germany’s DAX climbed 2.30%, Italy’s FTSE MIB tacked on 1.69%, and France’s CAC 40 Index added 0.73%. CHINA Economic data for October provided a mixed snapshot of China’s economy. The official manufacturing Purchasing Managers’ Index (PMI) fell to a below-consensus 49.4 in November from 49.5 in October, marking the second consecutive monthly contraction. The nonmanufacturing PMI slipped to a lower-than-expected 50.2 from 50.6 in October. Readings above 50 indicate growth from the previous month. On the other hand, the private Caixin/S&P Global survey of manufacturing activity rose to an above-forecast 50.7 in November from October’s 49.5, as new order growth rose to the highest level since June Chinese authorities issued a 25-point plan to step up financial support for the private sector in Beijing’s latest effort to boost business confidence. The measures aim to unblock financial channels such as loans, bonds, and equity financing. Separately, the People’s Bank of China released its third-quarter monetary policy implementation report, in which it highlighted the changing structure of lending. The central bank encouraged observers to look beyond the volume of new loans as it shifts its focus to improving the efficiency and structure of loans. A slowdown in industrial profits growth pointed to persistent weakness in parts of China’s economy Profits at industrial firms increased by 2.7% in October from the year-ago period but slowed from September’s 11.9% gain. For the first 10 months of 2023, profits fell by 7.8% from a year ago, slowing from a 9% contraction recorded in the first nine months of the year. The latest report deepened concerns that China’s recovery has yet to find a solid footing as a yearslong property sector slowdown has curbed demand across the economy. The value of new home sales by the country’s top 100 developers fell 29.6% in November from a year earlier, accelerating from the 27.5% drop in October, according to the China Real Estate Information Corp Chinese equities retreated as official indicators underscored concerns about the country’s fragile recovery. The Shanghai Composite Index gave up 0.31% while the blue-chip CSI 300 lost 1.56%. In Hong Kong, the benchmark Hang Seng Index fell 4.15%, according to FactSet. |
| Sources: T. Rowe Price, MFS Investments, Wells Fargo, National Bank of Canada, Handelsbanken Capital Markets, M. Cassar Derjavets |
