The numbers for the week – 22nd November 2021

The numbers for the week – 22nd November 2021

Markets last week

A pause in risk appetite took over markets last week, disregarding bullish economic data, particularly out of the US. Inflation continued to dominate the investment discourse, with UK consumer prices rising at the fastest pace in a decade and the Bank of England strongly hinting at interest rate action next month, but also German producer price inflation at an eye-watering 18.4%. Oil prices slumped in the wake of combined efforts from various governments, led by the US, to cap crude levels by using reserves or simply threatening to use them.

Despite American consumers ailing due to high prices, the US economy is firing on all cylinders. Tracking estimates of US GDP in Q4 are running at 8.2%, a strong bounce back after a weak Q3. The pair of regional Fed surveys that markets usually follow (Empire State and Philly fed) beat expectations and reached records, creating an unusual discrepancy between booming business surveys and weak consumer confidence.

In US politics, the new Build Back Better legislation (US$1.6trn in spending plus tax benefits, focusing on family benefits, climate and healthcare) passed the House of Representatives but may still have many hurdles ahead. Notable is that the planned tax hikes have been reduced sharply to the point that they hardly affect forward earnings of US listed companies.

The end of the Q3 result season in the US showed earnings almost 10% better than at the beginning of the quarter and an upgrade to profits for the rest of the year and the next two years.

The reintroduction of partial lockdowns and work-from-home edicts in various European countries seemed to have a moderate impact on European equities, which lagged US shares in an overall listless week.

The US dollar is at its strongest since July last year, but sterling was the star last week, on Bank of England rate expectations. Government bond yields fell somewhat, in line with the risk-off mood. The drop in yields was supportive for large growth stocks (mostly information technology) but energy and financials fell significantly during the week.

The week ahead

Tuesday: manufacturing and services PMIs for UK, eurozone and US (Markit) and Japan (Jibun Bank)

Our thoughts: PMIs across the world have been very strong throughout the Q3 economic slowdown, forecasting a recovery during the current quarter. The question is whether they will continue to show the same high level of growth and hence the ability of businesses to survive supply chain problems, inventory shortfalls, bottlenecks and labour shortages. The top line numbers matter, but it’s really going down into the pipes that will reveal what may be improving in the above situation, what is still stuck and what indeed may be getting even worse. The Markit PMI is less important for the US than the ISM, but in conjunction with other data, may still be giving us a useful picture.

Wednesday: US PCE deflator and PCE core deflator plus personal income and personal spending

Our thoughts: US inflation is soaring and the projections for October don’t seem to stem the surge, with both PCE (personal consumption expenditures) inflation and core PCE inflation (the US Federal Reserve’s gauge) expected to show a big jump. The Fed will be checking these numbers and their underlying details very carefully for clues as to whether the current high level is likely to stick. The relative percentages for each segment of the consumer basket are different for the PCE vs. the CPI (consumer price index), with rent a lower percentage in the PCE. Digging into the data will enable the Fed to judge whether inflation is spreading from category to category and hence to determine whether there is a potential mean reversion to a lower price rise level. The December Fed meeting may well resize the tapering in asset purchases (QE – quantitative easing) depending on the committee’s perception of the inflation threat. The numbers will be eagerly awaited by markets the day before the US Thanksgiving holiday.

Friday: Chinese industrial profits

Our thoughts: markets are often in the dark about the Chinese economy, due to having scarce data compared to other large countries. One piece of data that may help bridge the understanding gap is industrial profits. There is a large conundrum in China between the very low CPI (consumer price index) and an eye-watering PPI (producer price index). How can they be compatible? Surely producer prices must be eating into corporate margins if companies cannot raise their consumer prices by much? This question may be partly answered by looking at industrial profits. After a huge COVID-19 related drop, industrial profits soared early last year and then settled at a growth level in line with 2017-2018 activity. A continuation of the current trend would be good, but is this possible?


Markets for the week

In local currencyIn sterling
IndexLast weekYTDLast weekYTD
FTSE 100-1.70%11.80%-1.70%11.80%
FTSE 250-0.30%14.70%-0.30%14.70%
FTSE All-Share-1.40%12.60%-1.40%12.60%
US Equities0.30%25.10%0.10%26.90%
European equities-0.30%22.60%-1.90%15.00%
Japanese equities0.20%13.30%-0.10%3.70%
Hong Kong equities-1.10%-8.00%-1.30%-7.10%
Emerging Markets
Emerging market equities-1.30%-1.70%-1.50%-0.30%
Government bond yields (yield change in basis points)
Current levelLast weekYTD
10-year Gilts0.88%-468
10-year US Treasury1.55%-263
10-year German Bund-0.34%-823
Current levelLast weekYTD
Japanese yen/USD113.99-0.10%-9.40%
Commodities (in USD)
Current levelLast weekYTD
Brent oil (bbl)78.89-4.00%52.30%
WTI oil (bbl)76.1-5.80%56.80%
Copper (metric tonne)9646.5-0.70%24.20%
Gold (oz)1845.73-1.00%-2.80%

Sources: FTSE, Canaccord Genuity Wealth Management

Central banks/fiscal policy

Bank of England ready to pounce?

Bank of England Governor Andrew Bailey said how the UK labour market reacted to the end of furlough was the “missing piece” of the jigsaw when the MPC (Monetary Policy Committee) decided to leave rates unchanged a fortnight ago. His comment makes it more likely that the MPC will hike next month.

In the US, after the final approval of the infrastructure bill, the new Build Back Better legislation (US$1.6trn in spending plus tax benefits, focusing on family benefits, climate, healthcare, etc) passed the House of Representatives but may still have many hurdles ahead. Notable is that the planned tax hikes have been reduced sharply to the point that they hardly affect forward earnings of US listed companies.

United States

US economy firing on all cylinders again

Surveys: the Empire State manufacturing survey surged from 19.8 to 30.9, way above estimates and one of the highest numbers since the beginning of the last cycle. The Leading Index rose a strong 0.9% in October, up from 0.1%. The bellwether Philadelphia Fed Business Outlook Survey (“Philly Fed”) soared from 23.8 to 39.0.

Sales: retail sales rose in October for a third month, showing that households are unfazed by inflation. Retail sales rose 1.7% last month, following an upwardly revised 0.8% advance in September. Excluding gasoline and motor vehicles, sales gained 1.4%. 11 of 13 categories registered sales increases.

Housing: the NAHB housing market index rose to 83 from 80. US housing starts fell 0.7% in October vs. -2.7% the previous month whereas building permits bounced back 4% after a 7.8% previously. The MBA mortgage applications fell 2.8% on the week, down from +5% the week before.

Industry: US industrial production rose 1.6%, bouncing back after a weather-disrupted September. Capacity utilisation rose to 76.4% from 75.2%. September US business inventories also rose 0.7% and some large companies are reporting that their inventory situation is improving.

Employment: initial jobless claims were almost unchanged at 268K vs. 269K the previous week, though continuing claims fell sharply from 2.209 million to 2.08 million.


United Kingdom

Strong employment, sales and high inflation are a cue for the Bank of England

Housing: the Rightmove house price index fell 0.6% in November for a 6.3% year-on-year, a smidge down from the previous month at 6.5%. The house price index (average price for all dwellings from the UK Land Registry) in September rose by 11.8% year-on-year, up from 10.2% the previous month.

Consumer: retail sales had a good October, rising 0.8% including auto fuel and 1.6% excluding auto fuel, although the year-on-year numbers are still negative in both cases and there might have been some “Hallowe’en effect” in the numbers.

Employment: UK payrolls rose 160,000 in October up to 29.3 million employees (more than before the pandemic), suggesting very few of the 1.1 million workers who were on furlough became unemployed when the programme finished in September. A survey by the Resolution Foundation found that only 12% of the furlough people were no longer employed in October and most were inactive rather than unemployed. An Office of National Statistics survey found that only 3% were made redundant. Jobless claims fell 14.9 K with the previous month being revised to show an extra 30K drop. The September unemployment rate fell from 4.5% to 4.3%.

The number of job vacancies rose to a new record of 1.172 million at the end of October.

Inflation: UK inflation climbed faster than expected to the highest in a decade. The CPI (consumer price index) rose 4.2%, up sharply from 3.1% in September. The pickup in inflation last month was driven by natural gas and electricity prices. Food, motor fuel, used cars and restaurants and hotels also contributed to the sharp increase in inflation. Core inflation, which excludes energy, food, alcohol and tobacco prices, jumped to 3.4% from 2.9%. The PPI (producer price index) also showed cost pressures building further down the pipeline. The prices manufacturers pay for fuel and raw materials surged 13% in October compared with a year earlier. In response, factories raised the prices they charge their customers by 8%.

July-September annual growth in average total pay was 5.8% including bonuses and 4.9% excluding bonuses.

Public Finances: the Public Sector Net Borrowing Requirement eased slightly in October from £19.9bn to £18.0bn.


Nosebleed German producer inflation

Inflation: eurozone CPI (consumer price index) remained at a high 4.1% in October but the core CPI eased slightly from 2.1% to 2.0%. The German PPI (producer price index) jumped 3.8% in October to a year-on-year rise of 18.4%.

Economic Sectors: the eurozone construction output in September was up 1.5% year-on-year vs -2.6% the previous month. The EU27 new car registrations in October fell 30.3% vs. -23.1% previously.



Chinese economy not slowing down. No inflation in Japan.

China: the monthly data showed more consumption and less investment, with retail sales up 4.9% year-on-year vs. 4.4% previously, industrial production up 3.5% vs. 3.1%, fixed assets ex rural (i.e. investment) up 6.1% vs. 7.3%, property investment up 7.2% vs. 8.8% and the surveyed jobless rate stable at 4.9%.

Japan: the tertiary industry index rose 0.5% in September, against a drop of 1.1% the previous month. Imports rose 26.7% in October whereas exports rose 9.4% only. Core machine orders were flat in September for a 12.5% year-on-year growth, down from 17% previously. Japanese inflation seems to be dodging the global surge, with the October CPI (consumer price index) up 0.1%, down from 0.2% the previous month, and the core ex food and energy at -0.7% vs. -0.5% previously!


Oil/Commodities/Emerging Markets

Oil prices become political

OPEC said the global oil market will switch from being under- to over-supplied as early as next month and the International Energy Agency agrees that output is recovering. Oil stockpiles have been rebuilding and OPEC+ (OPEC plus Russia) says it will stick to its strategy of only gradually raising oil output. On the other hand, China seems to have been one country responding positively to President Biden’s request for major world powers to sell some oil reserves to keep prices down, but the devil may be in the implementation.


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