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US Real Estate and UK Labour Market in Focus 

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.

Travel Tuesday: Pakistan

Home to the highest paved road in the world – 4,800m!

Population (2023) 241 million

GDP (2023)  $375 billion

GDP Per Capita $1,565

Annual Economic Growth 5.8%

Biggest Export Textiles                     

World’s largest Football Manufacturer

US Real Estate

Bloomberg runs with an interesting story this morning, citing the plight of commercial real estate owners. They say that 20% of outstanding debt on commercial real estate will mature this year and therefore need refinancing.

Commercial property usually has a much shorter financing tenor than residential mortgages but still, this will be a shock of coming from near zero rates to something that probably starts with a four point Something or, if you’re lucky a three point something.

The total debt pool coming due is $929bn and it’s the banks who are the largest holders of this debt, with $441bn of loans mature over the course of 2024. The number is massive compared to other years because they had previously extended or delayed the refinancing, kicking the can down the road. It’s not clear how much they’ll be able to delay, or whether they’ll back the Fed to deliver cuts and do some short-term refinancing, soak up the pain and then hope that rates fall more materially into 2025.

UK Wage Growth Exceeds Expectation

This morning, data from the ONS indicated that UK wage growth excluding bonuses increased at 6.2% on an annualised basis in the three months up to December. This was marginally above expectations of 6% but nonetheless represented a considerable slowdown from last month’s print of 6.7%, indicative of the trend of easing wage growth seen since the June & July highs of 7.9%. When including bonuses, pay increased at 5.8%, which was again softer than the previous print of 6.7% but came higher than the consensus forecast at 5.6%.

The slowdown in wage growth now puts December’s reading at the lowest level in fourteen months, though remains historically high compared to the long-term average. Moreover, when adjusted for inflation, the data points to real wages rising 1.8%, up 30bps from the previous print. This indicates that as inflation eases real wages are rising at their highest level since the July to September 2021 period when it rose by 2.2%.

UK Unemployment Eases

UK unemployment came in softer-than-expected in the three months to December, easing from 4.2% to 3.8%, and representing the lowest print since January 2023. This came as the number of those in work rose by 72,000 to close to 33.2m people, as those in part-time work eased. As the ONS indicates, though the number of those in work is increasing, the rate of annual growth is nonetheless easing.

With more people entering the workforce, the number of job vacancies fell by 26,000 on the quarter to 932,000, marking the 17th consecutive fall. Elsewhere, regarding the impact of strikes, the ONS was 108,000 lost working days due to industrial action over the month.

Middle East Talks

In the Middle East, there are set to be talks between Mossad, the CIA, Egypt and Qatar today, in a bid to revive negotiations over the release of hostages and agree a long pause in fighting.

The talks come against a backdrop of Israeli offensive action in Rafah, which has upwards of a million people in the city.

There’s hope that with the head of Mossad travelling to Egypt for the talks, there could be some softening to Netanyahu’s very hard stance, which has come under a lot of criticism and pressure from just about everywhere. According to a diplomat briefed on the talks; “the discussions have been constructive and there’s a willingness to compromise…the key elements of the deal are on the table…there are gaps that remain”.

The last proposal from Hamas was that all hostages would be freed over a four-and-a-half-month ceasefire and in exchange Israel would free 1,500 prisoners (500 of which are serving life sentences). Clearly this deal didn’t go through, but because of the duration of the ceasefire, not necessarily because they’d have to give up so many prisoners. The FT has more, click here to read.

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