French Economy Continues to Slow Down
The French economy continues to decelerate, with manufacturing activity contracting and prices in services also decreasing. Both PMIs came in below 50, and below the negative expectations of the consensus.
Conveniently, European Central Bank policymaker Francois Villeroy de Galhau stated that the ECB’s interest rates are likely to remain unchanged for the next few quarters, reducing pressure on the European economy.
US Economy: A Mix of Good and Bad News
The US Durable goods orders numbers came in softer than expected, but there was some better news from the University of Michigan consumer sentiment survey. Although the inflation expectations surveys it contains were a bit higher than expected, US jobless claims also dropped, following their recent jump, which now looks like noise.
US Consumers Worry About Inflation
Despite recent signs of easing, US consumers are concerned that inflation will pick up again. The University of Michigan’s survey found that consumers are worried that inflation will accelerate to 4.5% over the next year, up from 4.2% in October and from 3.2% in September.
The Fed seems to be more balanced between inflation and growth.
The Fed’s policy rate has remained unchanged at 5.25% to 5.50% since July, and investors are now convinced the tightening cycle is over. A swift run-up in consumer inflation expectations in the spring of 2022 contributed to the Fed’s decision to ramp up the pace of rate hikes to three-quarters of a percentage point at four straight policy meetings last year. For a data-dependent Fed, these Michigan surveys are not good news.
Meanwhile, sales of previously owned homes in the US have dropped to their lowest level in over 13 years, while prices continue to accelerate.
- UK Economy: A Boost from Fiscal Stimulus
The UK Chancellor, Jeremy Hunt, delivered a GBP21bn stimulus to the UK economy in his Autumn Statement yesterday, estimated to deliver a 0.3pp boost to GDP growth over the coming 5 years. The boost was more than had been expected and has raised concern that the Bank of England may not ease next year as soon or as fast as had previously been imagined.
UK PMIs came out better than expected, recovering the pace of economic expansion. The pound gained ground against the dollar on the back of the data. However, retail sales fell again in October, putting additional pressure on the country’s struggling economy.
- UK Bond Yields Rise: UK follows Yellen’s strategy.
Following yesterday’s announcement of the UK government’s fiscal budgets, UK bond yields rose. The reason is the Debt Management Office’s decision to issue 237.3 billion pounds in bonds, instead of the 222.8 billion predicted by fixed income traders, in Reuters polls. Britain’s 10-year gilt yield finished up 6.8 basis points on the day at 4.175%, above a session low of 4.052%.
- BOJ to End Negative Interest Rates in 2024?
A Reuters poll found that over 80% of economists believe that the Bank of Japan will end its negative interest rate policy in 2024. Inflation in Japan is prompting investors to reconsider their investment strategies, as the country’s inflation rate rises.