Travel Tuesday, fresh forecasts from the OECD indicate high levels of inflation for the UK, further easing of BRC retail sales, and positive trading for China's stock market.
The Organisation for Economic Co-operation and Development (OECD) have released fresh forecasts which indicate that the UK will suffer the highest level of inflation within the G7 this year. Despite the OECD downwardly revising inflation expectations from the 2.9% forecast in November to the 2.8% forecast yesterday, projections still come above Canada (at 2.6%), France (at 2.7%), Germany (at 2.6%), Italy (at 1.8%), Japan (at 2.6%) and the US (at 2.2%).
Last month’s inflation print indicated that UK CPI remains double the Bank of England’s target, having risen 10bps from the previous month’s 3.9% figure. Core inflation continues to remain well above target too at 5.1% – well above the long-term average of 1.98% from 1997-2023. Given the ‘sticky’ nature inflation in the services sector, the BoE continue to face headwinds as interest rates remain at 16-year highs.
Looking more broadly at inflation, the OECD stated that “inflation is projected to be back to target in most G20 countries by the end of 2025. Headline inflation in the G20 economies is projected to drop from 6.6% in 2024 to 3.8% in 2025, with core inflation in the G20 advanced economies easing to 2.5% in 2024 and 2.1% in 2025”.
While the OCED downwardly revised inflation expectations, it also downgraded growth forecasts for 2024. The group now estimate that the UK will see just 0.7% growth in GDP this year ahead of 1.2% growth next year. This marks the third slowest growth in the G7, behind the European powerhouses of Germany and France. Looking more globally, the OECD cited tighter financial conditions and the impact of geopolitical factors in the Red Sea pointing to “some moderation of growth” moving forward.
This morning the BRC Like-For-Like Retail Sales beat expectations though eased for the second consecutive month as the cost of living continues to impact consumer spending. Against the forecasted 1.2% level, retail sales rose 1.4% on an annualised basis, dropping from last month’s print of 1.9%. Today’s print also marks the lowest level in fifteen months as weak consumer demand fed into lower levels of spending, along with the BRC citing poor weather putting off shoppers.
China’s stock market has traded positively today, as authorities there are trying to talk a very good game when it comes to stabilisation. The government’s plan is to “guide institutional investors…to enter the market with greater effort” – this can be loosely translated to “state owned and backed funds and companies will buy what they’re told, when they’re told, in however much they’re told”!
The news was enough to send the market higher by 3.5% and it’s hoped that this will now be enough to stabilise the market as we get into the holidays at the end of this week – though lighter trading volumes as we get closer to the weekend will mean less capacity to absorb any shocks if we do get any last-minute jitters.
Other good news for China is that they’re apparently set to build ‘next generation’ smartphone semiconductors, despite US efforts to slow down their access to the manufacturing technology. SMIC is the country’s largest chip manufacturer and they’re set to make a Huawei designed microprocessor that has a distance between transistors of just five nanometres, meaning that in just one square millimetre a chip can have 125-300 million transistors on it!
This is important because it takes this kind of computing power to process the amount of data that Artificial Intelligence’s Large Language Models consume and with these developments it seems that China has narrowed the gap between themselves and market leader Nvidia and this kind of success is likely to lead to China doubling down on the development, despite the eye-watering cost of chip manufacturing infrastructure, and the still limited access to the kit that it needs from the West. The FT has the story, click here to read.
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Thought for Thursday, House of Commons ceasefire vote decision, minutes released from Federal Reserve monetary policy meeting, geo-political update in Russia and Gaza, and looking at today's data.
Word of the week Wednesday, data indicates public sector net borrowing in surplus, this afternoons House of Commons vote for a ceasefire in Gaza, and release of FOMC policy me.eting minutes
Travel Tuesday, changes for China's property market, attacks on Red Sea Vessels cause further shipping disruption, EU defensive naval operation launched, and US propose a UN Security Council Resolution in the Middle East.
Macro Monday, update on Israel-Gaza conflict, town in Ukraine in full control of Russian forces, and pressure for creation of more public-private partnerships in the UK from insurers.
Friday Feeling, Labour take comfort in by-election results, potential for income tax cut plans to be dropped, president of European Commission speaks on European Union defence production.
Thought for Thursday, data released this morning shows UK in technical recession, Sunak's pledge for economic growth takes a blow, increasing number of MPs not looking for re-election for the Conservative party, and Labour party lead drops seven percentage points.
Word of the week Wednesday, hotter than expected US inflation, inflation data in the UK comes in double than BoE's target, US Senate agrees foreign aid package, and today's data.
Travel Tuesday, plight of US commercial real estate owners according to Bloomberg, data shows increase in UK wage growth, easing UK unemployment, and talks to revive negotiations in the Middle East.