Macro Data Points to a Resilient US Economy

Equity markets continued their recovery from October’s lows, with developed market equities gaining 7% and emerging market equities rallying by nearly 15%. The bond market also registered a strong month with yields in the US and Europe retreating significantly, leading to a 4.7% rally for the Global Aggregate Bond index.

Macro data continues to point to a resilient US economy. Retail sales were better than expected, with growth of 1.3% compared to the previous month. The unemployment rate rose slightly to 3.7% in October and continuing jobless claims increased, but only moderately. Personal income rose 0.7% MoM. Manufacturing PMI Index for November was adjusted modestly higher unexpectedly to 47.7 but remained in contraction territory (a reading below 50). However, the slump in housing activity is concerning as housing starts fell to 1.425 million units and existing home sales showed a further decline in sales. Inflation is expected to continue to ease as the global growth backdrop is weakening and the Fed signaled the deceleration of  the pace of aggressive rate hikes after raising rates by 75 basis points for four-straight meetings.

In Europe, indicators of economic activity surprised to the upside in November. The eurozone composite PMI improved slightly to 47.8 vs. 47.3 and consumer confidence improved from very low levels. The preliminary Eurozone CPI release for November, also showed a slight easing in inflation down to 10% YoY. Meanwhile, The risk of running out of gas this winter has further reduced for Europe in recent weeks, thanks to relatively mild temperatures and reduced demand. At the end of November, storage is at 93% of capacity.

In the UK, headline inflation hit 11.1% YoY in October, driven by rising food prices and utility bills. Core inflation remained stable at 6.5% YoY. Like in the eurozone, economic activity in the UK improved from depressed levels. Retail sales grew by 0.6% MoM and consumer confidence improved slightly to -44. Nevertheless, consumer spending is likely to be under pressure going forward, given the squeeze on incomes. The Office for Budget Responsibility expects real household incomes to fall by 7% over the two years to April 2024 – that’s despite £100 billion of government support.

Economic data in China surprised mostly to the downside. The composite PMI at 48.3, imports at -0.7% YoY and retail sales at -0.5% YoY all came in weaker than expected and continue to signal a slowdown in growth. Monetary policy was eased along with some support being provided to the property sector. On 11 November, policy makers in China announced 20 measures to relax Covid restrictions and Chinese officials may be preparing to bring an end to China's zero-COVID policy.