Macroeconomic View – Market Correction

Tue 06 Feb 2018

UK

Consumer confidence rose in January from -13 to -9, above expectations for the figure to remain flat. Nationwide housing prices year-on-year for January increased to 3.2% from 2.6%, the highest reading since March last year. The BOE’s concern surrounding borrowing was confirmed as consumer credit figures climbed to £1.52bn in December from £1.5bn the previous month. The pace of UK economic growth has slowed noticeably so far this year, evidenced by 3 weaker PMI figures. The Markit Manufacturing PMI for January fell from 56.2 to 55.3, missing expectations for a rise to 56.2, yet still in expansionary territory. The Construction PMI, however, fell from 52.5 to 50.2. Meanwhile the Services PMI fell to 53, below forecasts for 54.3, marking a 16-month low and showing the effects of reduced growth demand for business and consumer-facing services.

US

Data on industrial production was mixed. Factory orders increased 1.7% year-on-year in January, unchanged from December. Meanwhile durable goods orders for December rose 2.8% year-on-year from 1.7%, as core capital goods fell to -0.9% from 0.2%. January’s PMI data was no clearer, with the Dallas Fed Manufacturing rising to 33.4 from 29.7 and US manufacturing PMI moving up to 55.5 from 55.1. However, the Chicago PMI came in at 65.7, down from 67.8, as the ISM Manufacturing dropped to 59.1 from 59.3. Personal income for December rose 0.1% to 0.4%, although personal spending fell to 0.4% from 0.8%. Consumer confidence climbed to 125.4 from 123.1, while the Michigan Sentiment Survey was roughly unchanged at 95.7. Nonfarm payrolls rose to 200k in January, up from 160k and ahead of expectations for 180k. In housing the Case Shiller for November was 6.41% up from 6.32%.

EU

Preliminary Q4 GDP for the Eurozone came in flat at 2.6%. The preliminary core CPI reading year-on-year for January fell slightly from 1.1%, in line with expectations. Meanwhile PPI inflation for the same period fell from 2.8% to 2.2%. The Eurozone composite PMI for January was revised upward from 58.6 to 58.8 as the PMI for Services came in at 58. The optimism reflects the strong economic upturn that the Eurozone is experiencing, which continues to be broad-based and is set to continue in the months ahead. In Germany, preliminary CPI inflation year-on-year for January marginally declined to 1.6% from 1.7%. Meanwhile, Germany’s unemployment rate also fell slightly in January from 5.5% to 5.4%. In France, preliminary Q4 GDP was flat, meeting consensus estimates.

Emerging Markets and Japan

In Japan, retail trade surged to 3.6% from 2.1%, the highest reading since 2014. December construction orders fell significantly from 20.5% to -8.1%. However the Manufacturing PMI rose to 54.8 from 54.4, the highest since February 2014. The BOJ reasserted its curve control policy after the yield on 10 year JGBs reached 9.5bps, just short of the 0.1% upper limit. In China, the NBS Non-Manufacturing PMI rose from 55 to 55.3, whereas the Manufacturing PMI fell slightly to 51.3 from 51.6. The Caixin Manufacturing PMI was stable at 51.5, while the Services PMI beat estimates, coming in at 54.7, boosting the composite number to 53.7. India’s Finance Minister triggered a sell-off in the bond market with a wider deficit target for fiscal 2019, as the Services PMI rose to 51.7 in January from 50.9 the month before.