- Brexit has added £6 bln. to UK food bills
- Challenging first half expected but no recession
- Inflation to fall further but to remain elevated
Prices fall at their fastest rate since 2020
Data released yesterday showed that house prices fell at their fastest rate since 2020 last month. The average price of a house fell by 1.4% in November, following a 0.9% fall in October.
On a year-on-year basis, that contributed to prices rising by just 4.4% against a 7.1% rise a month earlier. This is the third month fall in a row and the largest since June 2020. That three months into the lockdown and prior to support being announced that included a stamp duty holiday.
The Bank of England’s policy of tightening interest rates that has now been in place for a year is beginning to slow the economy, and it is expected that the housing market will be just the beginning. There were tentative indications that employment growth is slowing when the data was released recently.
A month-on-month increase in the number of claimants is expected to be seen when the November employment report is published.
The Government is failing in its target to have 80% of all exports covered by free trade deals. A report published yesterday showed that just 63% of trade was covered. The most important deal still to be done is with the U.S. but the Biden Administration is not currently prioritizing it.
Next week will see the release of the PMI data, which is expected to also show that output is slowing and will be a prelude to a contraction of activity in the current quarter.
The pound continued to react to the perceived dovish pivot by the Federal Reserve over the past couple of weeks.
It rose to a high of 1.2310 and closed at 1.2243. Versus the single currency, the current strength of Sterling has been less pronounced. Yesterday, it rose to a high of 1.1701, but fell back to close at 1.1633.
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Job-cushioning replacing job-hopping
The figure was more than double what it was last month. Also released this week, the JOLTS data on vacancies fell from 10,680k to 10,334k.
While the official estimates for headline jobs created in November is still at 200k, rumours are spreading that the actual number could be close to or even below 100k.
If that is proved to be correct or even close to the actual number, the rumours that new jobs created may be in negative territory by the end of the first quarter may come true.
Data for manufacturing output was released yesterday. It showed a marginal increase from October’s figure.
Manufacturing and industrial output is under serious threat from the proposed strike by railway workers. The situation is worsened by the fact that while they are acting over pay, the more serious complaint is about conditions and number of hours worked, a situation that has existed for close to fifty years.
Several commentators are now predicting that the economy will suffer a sustained period of low growth lasting well into the time that contenders for the 2024 Presidential election are starting their campaigns.
There is an air of renewed optimism flowing through the financial markets as Fed Chairman Jerome Powell has signalled a slowdown in the rate and size of interest rate hikes.
The dollar index continued to head south yesterday, driven by the Fed’s pivots to perceived dovishness. This is happening just as the market has grown comfortable with second guessing its actions.
The dollar index fell to a low of 104.63 and closed at 104.69. This was its lowest close since 10th August and has opened a possible test of long-term support at 103.50.
Eurozone jobless are at record lows
Data released yesterday showed that the fate of employment fell from 6.6% to 6.5% last month, an all-time low.
There is a growing feeling amongst market commentators that inflation data often lags its release by around three months. That has led to a level credence being given to a belief that the inflation situation in both the Eurozone and U.S. is better than the markets realize, and this has led to the Fed’s recent pivot.
Manufacturing activity is continuing to fall across the region and still is well below the level at which it is contracting.
Inflation has fallen in the Eurozone over the past month and while it will remain elevated, mostly due to the war in Ukraine, for the first half of the New Year, the situation is not nearly as bad as has been perceived by the more hawkish members of the ECB’s Governing Council.
While Central Bank’s pronounce themselves to be driven by data, their economists are busy modelling what the future is likely to look like.
This follows a surprisingly hawkish speech from Christine Lagarde earlier this week, in which she said that the Central Bank is not done raising interest rates. It is likely that the true meaning of her words is that given rates are still accommodative, the ECB wants to bring them as close as possible to neutral as quickly as possible.
The euro is basking in the glow of an extended period of strength, which will also have the effect of lowering inflation, although it may see exports hit.
It rose to a high of 1.0533 and closed at 1.0524. That is its highest close since mid-June.
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01 Dec - 02 Dec 2022
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Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.