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European industrial data, US consumer data poor this week …
- UK GDP was flat in October (consensus: +0.1%), mostly driven by weakness in the construction sector (-2.3% over the month). Given the contraction in GDP in both August and September, the BOE forecast of +0.2% quarterly GDP growth in Q4 looks unlikely to be met. The largest sector of the economy, services, was up +0.2% over the month (consensus: +0.1%)
- UK industrial production dropped -1.3% in October (September: -1.4%, consensus: +0.1%), driven particularly by accelerated decline in mining as well as weaker numbers in manufacturing and electricity supply.
- Eurozone industrial production fell 0.5% in October (September: -0.1%), largely driven by a sharp decline in Germany, with investment goods causing the majority of the decline (-4.4% in October). Production also fell in Italy and Spain, -0.3% and -0.4% respectively, but French production surprised to the upside, +0.4% over the month with positive numbers from durable goods and pharmaceuticals.
- On a more positive note, the December ZEW survey reported more positive business sentiment in Germany, showing a 12.8 point rise over the month which put the score back into positive territory for the first time since March 2018. Retail and trade were highlighted as drivers of the stronger result.
- US retail sales began the festive season on a cheerless note, with the control group, which excludes volatile sectors (autos, gasoline, food services, and building materials) up only +0.1% in November (vs +0.3% expected) and downward revisions to the past two months.
The monetary policy impulse has moved from easing to neutral….
- At her first meeting as ECB Chair, Christine Lagarde committed to maintain loose monetary policy in an effort to stimulate growth and push inflation higher. Rates are currently on hold at -0.5% and the ECB have committed €20 billion per month to the current bond buying programme. Lagarde reassured markets that “downsides risks on the horizon are less pronounced” and “there are some signs of stabilisation in the growth slowdown”
- At the FOMC meeting this week, the Fed voted to keep rates on hold at 1.50 – 1.75%. Powell has made it clear that until we see “a significant move up in inflation that’s also persistent”, rates will not be cut further from current levels
Market yo-yo on trade...
- Thursday saw equity markets surge on reports from the Wall Street Journal suggesting a trade deal had been reached between the US and Chinese negotiators and signed off by President Trump, with the overwhelming victory of the Conservative party in the UK General Election further improving sentiment, particularly in European markets. However, sentiment eroded through the course of Friday’s session, particularly after Trump tweeted that the WSJ story was “fake news” (the reason for the 24-hour lag time from the story breaking to the repudiatory tweet is unclear).
- However, by the close of the week a verbal agreement had been made public involving delay of the December round of tariffs and, for the first time, partial rollback of existing tariffs (the rate on the $120bn of goods tariffed in September will be lowered from 15% to 7.5%). Note, this is still to be formally signed off, although both sides have stated they hope this will get done in January.
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