Economic Highlights

The latest Money and Credit figures (for November) showed that households in aggregate continue to deleverage, with a net £1.5bn of unsecured loans being repaid. Small businesses, though, appear to be borrowing more to survive (bank borrowing +£1.8bn). Mortgage approvals remained strong, rising to 105k, as buyers continue to take advantage of the Stamp Duty holiday. The continued high level of (enforced) savings bodes well for a release of pent-up demand once Covid restrictions are lifted.

Jobless Claims dipped from 803k to 787k in the week running up to Christmas, but that might not be a reliable number in a holiday-shortened period. Other notable data over the period included the Fed’s preferred measure of inflation, the core PCE index. That remained unchanged at 1.4% in November, but it should be noted that the market-derived 10-year inflation breakeven rate (ie the market’s prediction of average inflation over the next 10 years) has just nudged above 2% for the first time since late 2018.

The latest batch of Manufacturing PMI readings suggest that Europe’s factories are doing their best to make up for the travails of the Service economy. The overall Eurozone reading came in at 55.2 vs 55.5, with the dip coming mainly from Germany (58.3 vs 58.6). Most countries’ readings in Europe are now in positive territory (over 50).

The headline Caixin manufacturing PMI fell to 53.0 in December from 54.9 in November. New orders and production sub-indices implied growth momentum moderated in the manufacturing sector, in line with the official state manufacturing PMI. The raw materials and finished goods inventory readings also declined, and rises in both the input and output price indices suggest higher inflation pressures. We have noted some signs of policy tightening by the CCP, and so none of this should come as a great surprise. The policy shift is aimed at containing speculative excess and therefore is not expected to be too stringent.