Welcome to the weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last few weeks.
UK retail sales contracted in December as higher inflation and Omicron uncertainty weighed on consumers
After robust growth in November, UK retail sales contracted by 3.7% in December. Looking behind the numbers, the spread of Omicron appears to have deterred shoppers from visiting the high street, resulting in lower footfall and a 7.1% fall in sales of clothing and non-food items.
Despite December’s decline, retail sales have held their ground above pre-pandemic levels – at least for the time being. High consumer price inflation (CPI), which hit 5.4% for the 12 months to December, may be making consumers more cautious in their spending habits. Given this, it might be reasonable to expect further sales weakness in the months ahead.
The CPI’s new peak is the highest rate of inflation recorded in the past 30 years. Much of the rise has been driven by energy prices, which are likely to propel UK inflation yet higher in 2022, particularly once the price cap on gas and electricity retail prices is increased in April to reflect higher wholesale energy prices.
The equity market sell-off gathered momentum last week, as investors’ concerns grew over tightening financial conditions in the US economy and the likely knock-on effect this might have among highly valued companies. The NASDAQ index, which is mostly comprised of information technology companies, entered into correction territory (a drawdown of more than 10%) for the first time since the outset of the pandemic. US equities were generally weak, dragging the headline global equities index, the MSCI All Companies World Index, down more than 4%.
In contrast, the Chinese equity market, which was the worst performing major equity market last year, recovered some lost ground following the decision by the People’s Bank of China to loosen monetary policy in response to slowing economic growth.
Finally, the Brent Crude oil price topped $88 for the first time since 2014 last week as fears over a potential Russian invasion of Ukraine, combined with concerns that OPEC+ are approaching their production capacity constraints, led some market commentators to suggest that $100 oil is not only possible but likely.
Look out for next week’s update, where we’ll be focusing on the Fed policy meeting, US GDP and PMI survey data.
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