Weekly Macro Review - 6th October 2017

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It was a mixed bag of PMI figures last week. The Manufacturing sector saw slower growth despite its index remaining at a healthy 55.9 during September (August: 56.7). The weaker underlying trends however could be cause for concern with rising costs really starting to take their toll. Margins in the sector have therefore come under pressure and importantly, there are signs that optimism across the sector is now starting to wane. Additional negative manufacturing related news came this morning if the form of trade data which revealed that the trade deficit has actually continued to widen despite the weakness in sterling over the last 12 months. There was hope that domestic exports would rise considerably due to them being more competitive on the global stage.

UK

It was a mixed bag of PMI figures last week. The Manufacturing sector saw slower growth despite its index remaining at a healthy 55.9 during September (August: 56.7). The weaker underlying trends however could be cause for concern with rising costs really starting to take their toll. Margins in the sector have therefore come under pressure and importantly, there are signs that optimism across the sector is now starting to wane. Additional negative manufacturing related news came this morning if the form of trade data which revealed that the trade deficit has actually continued to widen despite the weakness in sterling over the last 12 months. There was hope that domestic exports would rise considerably due to them being more competitive on the global stage.

Regarding the other PMI's, the construction sector went into reverse, contracting for the first time in more than a year with a reading of 48.1. Both commercial and civil engineering recorded negative growth and whilst housebuilding registered an expansion, its momentum slowed. Despite this, the latest figures from Halifax showed house prices back on an upwards trend once again with Septembers monthly increase pushing the average house price to £225,109, the highest on record. The Services sector was largely unchanged at 53.6 although new business growth eased to its lowest for 13 months with input costs also edging higher.

US

As is always the case with the first Friday of the month, the latest labour market report was released with the dataset worse than expected at payroll level. The non-farms revealed a 33,000 drop in the number of jobs in the economy with Hurricanes Harvey and Irma causing all sorts of disruption in both Texas and Florida respectively. Despite this, the headline unemployment rate actually dropped by 20bps to 4.2% although that was largely due to people leaving the workforce altogether during the month. It is likely that it will take several months for the impact of the two storms to work their way through and October's data is also likely to be distorted. Encouragingly, the pace of wage

rose to an annualised +2.9% pace which is its fastest rate since December last year.

The Institute for Supply Management released an impressive set of PMI equivalents. Manufacturing activity reached its highest in 13 years after strong gains in both new orders and raw material prices. The reading of 60.8 represented a 2.0 point improvement during September despite the hurricanes causing some supply chain disruptions. The acceleration in Services growth was even more profound with its index jumping by more than 4.0 points to 59.8 with 14 of the 17 sectors surveyed reporting strong growth. New orders (both domestic and from overseas) spiked sharply which should mean further strong growth over the coming months.

Eurozone

Labour market data was also released in the Eurozone last week with headline unemployment unchanged at 9.1% during August, the joint lowest in 8 years. The country with the lowest overall jobless rate was the Czech Republic at just 2.9%, followed by Germany and Malta with the highest rates continuing to be seen in Greece and Spain. On a negative tone, youth unemployment continues to pose a considerable problem for the regions politicians. In Europe as a whole, 3.7m aged between 18 and 25 remain out of work with Greece topping the list at an incredibly high 43.0% followed by Spain and Italy.

Retail sales decreased for a second straight month during August, defying economists forecast for a rebound. Volumes were -0.5% lower on a monthly basis, with the +1.2% annualised increase 110bps slower than the gain recorded back in July. The monthly decline was actually the worst figure for 2 years and could be cause for concern at the ECB as it continues with its battle against benign inflation.

Japan

There were no major data releases/key macro events in Japan last week.

China

There were no major data releases/key macro events in China last week.

Other Snapshots From The Week

- It was meant to the speech that relaunched her leadership of both party and country. Instead Theresa May's speech at the Conservative Party Conference in Manchester on Wednesday descended into nothing short of disaster. With her voice failing due to illness, a prankster proceeded to hand her a P45 and to cap it off, the set behind the podium began to fall apart. Whilst proposals regarding an energy price cap, funding for council homes and a limit of university tuition were revealed, the sheer fragility of the Prime Minister was evident for all. Despite stating its support for its premier, certain members of the Cabinet are probably scheming right now, sensing blood in the water and a chance to steal the PM title for themselves.

The Week Ahead

This week is a relatively quiet one by recent standards with US CPI inflation on Friday the item to keep an eye on. An increase on last month's annualised +1.8% is expected which is a likely reflection of the impact of the recent hurricanes. The release of the minutes from the latest FOMC meeting is also likely to get plenty of attention; expectations of another rate before year end currently stand at around an 80.0% likelihood. Domestically, the Bank of England releases its quarterly Credit Conditions survey on Wednesday and will include data on secured and unsecured lending to households, small businesses and non-financial corporations. In terms of data, this morning's manufacturing production figure for September (+0.4% MoM) was the key item of the week. The main data out of China this week arrives on Friday in the form of trade data for September. Eurozone and Japanese activity is in short supply.

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