Market news 14 December 2018

China

• Chinese industrial production came in below expectations +5.4% year on year in November (consensus: +5.9%, October: +5.9%). Crude oil, automobile, steel and electricity sectors decelerated in November. Retail sales were also below consensus, +8.1% year on year in November (+8.6% in October), despite a strong Singles Day earlier in the month generating sales in excess of $31 billion. Weaker auto sales and lower consumer inflation detracted from sales growth over the month.

Japan

• Japanese Q3 GDP was revised lower to -2.5% quarter on quarter (-1.2% previous estimate, consensus: -2.0%). Negative growth in Q3 reflected declines from peaks in Q2, exacerbated by the severe floods during the quarter. The private sector capex component declined sharply over the quarter, with multiple sectors including wholesalers, retailers and information communications reducing spending. Capital spending has been strong in Japan since late 2016, underpinned by automation spending and labour-saving technology, providing some support for growth and inflation.

Eurozone

• Eurozone industrial production was also weak, increasing +0.2% month on month (consensus: +0.1%). Production was relatively strong in Spain and France (+1.2% each), but was weak in Italy (-0.1%) and Germany (-0.6%). Energy production fell over the month (-1.7%) while capital goods production increased modestly. The majority of the weakness can be attributed to the disruptions in car production (-10.5% in Q3), although few other sectors have offered notable growth in recent months. Flash PMI dropped further in December to 51.4 for manufacturing (53.1 in November) and 51.4 for services (53.4 in November). The individual PMI readings for Italy and France have dropped into contractionary (sub-50) level.
• The European Central Bank Governing Council left its policy rates unchanged at their meeting this week, confirming that the asset purchase programme will end this month. The staff macro-economic projections gave a small downward revision to GDP growth in both 2018 (-0.1pp to +1.9%) and 2019 (-0.1pp to +1.7%). Inflation was also revised down -0.1% to +1.6% in 2019.

UK

• UK GDP was roughly flat over the month in October (+0.1% month on month). Industrial production fell -0.6% month on month in October (consensus: +0.1%), led by manufacturing which fell -0.9%. The trade deficit widened further over the month, imports +2.2% and exports -0.1% over the month, with exports to the EU extending their recent weakening trend.

Rest of World

• Global equities generally declined, although in Europe they were modestly higher versus notable declines in Asia and North America. Core government bond yields were little changed, whilst the US dollar registered further broad-based gains.