Economic Highlights

The scorers were not greatly troubled by economic data releases in the UK last week. House prices continue to rise, with the Nationwide measure back at a double-digit year-on-year gain. As noted in the Monthly Digest, this sets the average household up for another year of strong gains to net worth, especially with equity markets having risen too.

Friday’s excitement was all about monthly US employment data. The release was a very odd one, with Non-Farm Payroll growth of 210k well below the expected 550k. Economists attributed this to a combination of seasonality and rising infection rates, as well as the higher base following upwards revisions to the previous two months’ data. It would appear that momentum was already weakening before the Omicron news broke, suggesting potential for a low December print if you can bear the thought of making the mental leap past Christmas and New Year to 7 January 2022. Labour supply data looked more promising, with 594k additions to the labour force, taking the Participation Rate from 61.6% to 61.8%. Even so, the Unemployment Rate, which comes from the separate household survey rather than official Bureau of Labour & Statistics data, surprisingly fell from 4.6% to 4.2%, with strong gains for both younger and Black workers, which is politically helpful to the President. Wage growth moderated by a tenth to 4.8%, which will have pleased the Fed, with the month-on-month figure of +0.3% the lowest since March. But it was noted that wages amongst less skilled production and non-supervisory workers rose faster at +5.9%.

Inflation hit new highs for this cycle, with a headline reading of 4.9% year-on-year for the eurozone in November. The core figure was a more modest 2.6%. The figure for Germany was an astounding 6%, which, as one might expect in a country with its history of hyperinflation, created lurid headlines. Meanwhile, though, European Central Bank (ECB) President Christine Lagarde remains pretty much alone among her peers in continuing to describe the current inflation as a short-lived “hump”, and the ECB is last in the queue of major Western central banks when it comes to expectations of when interest rates will begin to rise.

Following a broad hint of a policy shift at the central bank from Premier Li at the end of last week, the People’s Bank of China duly cut the Reserve Requirement Ratio for large banks from 12% to 11.5% on Monday. This does not make loans cheaper, but does make more of them available. It was a not-unexpected response to a slowing economy (even pre-Omicron) with the threats of large defaults in the property industry still lurking. On the front, it does look as though Evergrande is finally about to enter into some sort of orderly unwinding process, which we believe markets will be able to tolerate without to much volatility. China could well be loosening policy in 2022 when pretty much everyone else is tightening.