Economic Highlights

There was little hard data released in the UK last week, but survey outcomes were largely upbeat. The latest Markit PMI readings showed an unexpected improvement in Manufacturing (58.2 vs 57.8) and Services (58.6 vs 59.1) indexes, although the level was a bit lower than in October 2021. The latest CBI Trends Total Orders index jumped from 9 to 26 (forecast 8), while the Retail Reported Sales index rose to 39 from 30 (forecast 33). Perhaps more sobering was the continued rise in Selling Prices, where the index rose from 59 to 67 (forecast 57). But it does at least appear that the UK economy was on a reasonably positive trajectory before the latest COVID variant news.

There was a small upward revision to Q3 GDP, which now shows growth of 2.1%, with the effects of the Delta variant in the summer largely to blame for weaker demand, along with lingering supply chain problems. The closely watched Core PCE Price Index (which is the Fed’s favoured inflation indicator) ticked up again by 0.43% month-on-month in October 2021 and 4.12% year-on-year, well ahead of the Fed’s 2% target, and uncomfortably high even allowing for some averaging. Thus, the lean towards tighter policy. The outlook for Q4 growth is strong (Omicron permitting, but two-thirds of the quarter has passed already). The Atlanta Fed’s GDPNow forecast suggests a whopping 8.5% growth, although the US annualises its quarterly GDP data, and so relatively, it’s 2.1%. But still strong.

The 'flash' PMIs for November suggest a strong month of activity for the Euro area. The composite output index rose to 55.8, nearly three points ahead of the consensus and a rise from October's 54.2. Both the Manufacturing (58.6) and Service (56.5) sectors exceeded expectations. This came as a surprise given the rapidly rising pandemic-related concerns and lingering supply constraints. Even so, supply delays were cited to have remained close to record highs, and fears over supply issues further boosted inventory-building by manufacturers. There was further evidence of inflationary pressures, with firms' costs and average selling prices rising at record rates, although speakers from the European Central Bank remain of the view that current higher inflation is a temporary phenomenon in Europe.

China’s Industrial Profits figure for October, showed them to be up 24.6% y/y, vs +16.3% in September. With one day to go, it looks as though we are going to get through November with no official defaults on debt payments by any Real Estate companies. That comes as something of a relief, although there are still some big coupon payments scheduled before the end of the year, which means that there is some risk of negative news to come.