Passing The Baton
19 July 2021
Financial markets are in the process of negotiating a baton-pass at the moment, and it is proving to be a tricky manoeuvre
4 min read
19 Jul 2021
Economic Highlights
Welcome to our Economic Highlights, bringing you market updates from across the UK, US, Europe and China, as well as the FTSE weekly winners and losers.
UK
UK CPI inflation climbed to 2.5% y/y in June from May’s 2.1% (consensus f/c +2.2%). The largest upward contributions to the increase came from food, second-hand cars, clothing and footwear, eating and drinking out and petrol. While ‘base effects’ such as indirect tax reductions a year ago are part of the higher inflation story, a number of current supply constraints are generating upward price pressures.
These are not expected to persist in the longer term. Labour market data suggested continued recovery in the economy, with the claimant count dropping by 115k, although the unemployment rate was unchanged at 4.8%. Average pay growth jumped from 5.7% to 7.3% driven by base and compositional effects, leaving the Chancellor with a tough decision to make on the “triple lock” promise for public pension increases.
US
June’s headline CPI was much stronger than expected at 5.4% y/y (f/c 4.9%), while the core measure came in at 4.5% y/y (f/c 4.0%). There was a strong influence from second-hand car and truck prices, which jumped by another 10.5% on the month, taking the annual increase to 45.2%. Gasoline costs rose by 2.5% m/m, or 45.1% y/y.
These two items alone accounted for around 3 points of the 5.4% headline rate. The University of Michigan’s index of consumer sentiment declined by 4.7 to 80.8 in the July preliminary report (f/c +1). Both the survey's current economic conditions (-4.1 to 84.5) and expectations (-5.1 to 78.4) components were lower. The report’s measure of short-term inflation expectations increased sharply to the highest level since 2008 (+0.6% to 4.8%), but long-term inflation expectations rose only modestly (+0.1% to 2.9%). That reflects the shape of the breakeven curve, which maintains that the current inflation spike will be transitory.
Europe
Industrial Production slipped 1% m/m in May (f/c -0.3%), with COVID restrictions and supply chain bottlenecks weighing on activity. The y/y growth rate remained very healthy at 20.5% (f/c +22.2%), but, as with a lot of other data, represented a deceleration from peak levels and from April’s +39.4%.
China
China’s economy grew by 1.3% q/q in Q2 (f/c +1.2%). However, revisions, including a downward adjustment to GDP in Q1 to +0.4% q/q (vs +0.6%), meant that the annual rate of growth missed expectations, with GDP expanding by 7.9% y/y (f/c +8.1%). In terms of the usual monthly data, industrial output grew by 8.3% y/y, whilst retail sales growth stood at 12.1% y/y, both slightly ahead of forecasts.
Broadly the figures show the Chinese economy continuing to recover and perhaps being a little more resilient than was expected following the recent Reserve Requirement Ratio cut by the central bank.
Source: FactSet
Source: FactSet