The week started with the November U.S. Empire State Factory Index which surprised on the upside, coming in at 30.9 against an expectation of just 22. All components of the report were stronger than the calls, despite supply side chain issues, this was a strong report.
Biden and Xi Jinping had their first face-to-face virtual summit. Xi called for rational U.S. policy toward Beijing and said ‘drastic’ measures will be taken if the red line on Taiwan is crossed. Biden pressed Xi to fulfil China's phase 1 trade commitments and said he opposes unilateral efforts to change Taiwan's status quo.
The global inflation concerns continued as coal continued its recent upward trend and was trading at its highest since 2009. We also had BoE Governor Bailey warning that he was ‘very uneasy’ about the inflation outlook. He defended his decision to maintain interest rates at 0.1% at last month’s meeting, to the dismay of many. Bailey justified the decision to stay put on interest rates as the lack of data as to what would happen to around 1 million workers who were still on the government's furlough scheme that ended in September had made him want to sit on his hands rather than jump the gun.
On Wednesday Bailey’s ‘uneasy’ feeling came to fruition when the UK inflation figures ripped higher, rising to a 10-year high of 4.2%, more than double the Bank of England’s inflation target. This was well above the 3.9% market estimates, and up from 3.1% in September. The month-on-month figure was also 0.3% above market estimates of 0.8%, September’s figure was just 0.3%.
The numbers were driven by ‘an increase in household energy bills due to the price cap hike, a rise in the cost of second-hand cars and fuel as well as higher prices in restaurants and hotels’ the chief economist at the Office for National Statistics said, adding ‘Costs of goods produced by factories and the price of raw materials have also risen substantially and are now also at their highest rates for at least 10 years’. The price of second-hand cars jumped 4.6% last month alone, and are up over 27% since April.
However, the UK’s 10-year high inflation figures were beaten by those in the European Union where year-on-year numbers saw inflation hit a new 13-year high in October, at 4.1%, again well ahead of the consensus forecast of 3.7%. September’s figure had come in at ‘only‘ 3.4%.
On Thursday there were reports that Biden and his Chinese opposite number Xi Jinping discussed the possibility of releasing oil from their strategic petroleum reserves to ensure stability in global energy markets. The virtual summit earlier in the week didn't make any concrete decisions on the issue and both men put forward their own views on the subject. They agreed to keep talking about the oil market and a possible coordinated response.
Friday morning the UK data for October released earlier beat expectations as the figures Including autos and fuel came in at 0.8%, 1% higher than September. However, the big surprise was excluding autos and fuel, as month on month numbers came in at 1.6% when only 0.6% was expected, 2.2% above September number. This was the first positive retail sales report in six months and will go some way to reassure policy makers at the BoE that the consumer and household spending remains resilient. The biggest rises were in toys, sporting goods and clothing as shops that do not sell food reported an increase in sales of 4.2%. Unsurprisingly, fuel sales had a big fall, down 6.4% on the month, as sales returned to more normal levels after the panic buying seen earlier in the year.
The market continues to price in a rate hike from the BoE next month taking the rate up 0.15bp to 0.25%, which given recent data on inflation, employment and consumer attitudes does seem to be on the cards especially as purchase intentions for major items into the holiday season continue to be strong. This would make the BoE the first of the major central banks to raise rates since the beginning of the pandemic. However, the 'unreliable boyfriend' could have other ideas.
Over the week markets were on the quiet side. Oil came off its highs with the talk of releasing some strategic reserves by the US and China. We did see a rally in treasuries as reports still to filter through of further Covid related lockdowns in Europe. The USD also continued to find a bid, especially against the Euro for the same reason.
It's Thanksgiving week in the US, with the highlight being Biden's announcement for the Fed Chair nominee. Outside of that, most of the data will be on Wednesday with FOMC minutes, U. Of Michigan Sentiment along with Wholesale Inventories and Durable Goods.
The eurozone has a quiet week with November PMI readings will be reported on Tuesday. German IFO business climate and French business confidence will be reported on Wednesday. December German GfK consumer confidence will be reported on Thursday.
Here in the UK, we have PMI’s tomorrow.