Economic Highlights

The post-election bounce continues, at least in the soft data, with a strong recovery in the PMI readings. Manufacturing jumped from 47.5 to 49.8, with Services up from 50.0 to 52.9, both well ahead of forecasts. The Composite reading leapt from 49.3 to 52.4. Following a surprisingly strong number for employment growth in the 3 months to November (+208k), the case for the Bank of England cutting rates this week looks much less strong. The odds have dropped to around 50/50 now.

One reason not to expect a US recession this year is the strength of the Housing Market. Housing Starts numbered 1.608m in December, well above even the most optimistic expectations. However, there is a note of caution to be taken from employment data, with Job Openings falling to 6.8m in November from a peak of 7.6m a year earlier. This will help to keep a lid on wages. 

Germany’s budget surplus for 2019 came in at 1.5% of GDP, underlining its capacity to introduce fiscal stimulus. Perhaps feeling a bit guilty about its riches, the government announced an €86bn 10-year investment package for the rail network. More of this to come, one feels.

Japan completed the full house of improving data, with the Services (52.1) and Manufacturing (49.3) PMIs rising, leaving the Composite at 52.1 (up from 49.4). It will be interesting to see how all of these series fare in light of the coronavirus outbreak.