Economic Highlights

The market’s attention was entirely focused on the Bank of England’s Monetary Policy Committee decision last week, with expectations of a 0.15% rise in the bank rate pretty much baked in. Therefore a 7-2 vote to leave policy unchanged was a shock, and contributed to a sharp fall in the 10-year Gilt yield, which dropped from 1.02% to 0.84% during the week. Asset purchase targets were left unchanged, but the programmes will soon run their predefined course anyway. The market is still expecting a raise in either December 2021 or February 2022, especially as the Bank confirmed that inflation indices will print at 5% or more in the coming months.

The monthly US employment report was a positive one from the growth perspective. The headline Non-Farm Payroll number rose by 531k versus an expected 450k in October 2021, and there was also an upward revision of 118k to the September figure. The Leisure & Hospitality sector was a strong contributor again, adding 164k jobs as the effects of the Delta variant wave continued to recede. It was also encouraging to see gains in transportation and warehousing (54k) and motor vehicles (22k).

Less encouraging was the fact that labour supply remains weak, with just 104k new entrants into the workforce. This left the participation rate at a lowly 61.6%, compared with a steady 63% pre-COVID and 66% pre-financial crisis. Thus, the unemployment rate fell from 4.8% to 4.6%, with the annual rate of hourly earnings now +4.8%. The Fed may want to see more data before reaching a firm conclusion, but there are plenty of economists suggesting that this reduction in the labour force is permanent, and, consequently, potentially more inflationary.

There was very little activity to move the needle in Europe last week. No doubt the European Central Bank (ECB) will have noted that Producer Prices rose 16% in September 2021. These were running negative through all of 2020 and had never been higher than 8.9% since the series started in 1982. But they do have some potential bearing on future consumer prices. Even if the ECB continues to push the “transitory” narrative, there might be a few moments of doubt in the months ahead.

Data from China over the weekend showed weaker-than-expected imports and stronger-than-expected exports, resulting in an increased monthly trade surplus of $84.5bn, which happens to be the largest monthly surplus recorded in the history of this series. So much for tariffs and trade wars. Foreign Reserves remain rock solid at $3.22 trillion, contributing to a steady increase in the international value of the Renminbi.