Market Commentary 9th December 2024

A Purchasing Managers’ Index (PMI) for November indicated that the UK’s manufacturing sector shrank for the first time in seven months, with new orders declining and supply constraints worsening. Construction firms saw stronger output during the month, however, residential property construction was a weak spot, with property developers citing the impact of high interest rates.

Mortgage lender Halifax reported that the average UK house price rose for the fifth consecutive month in November, with prices 4.8% higher than in November 2023. This followed data from Nationwide earlier in the week, with the lender’s November house price index showing that prices were 3.7% higher year-on-year. Nationwide stated that the house price growth was “surprising” given that affordability remains stretched.

Political instability continued to dominate headlines in Europe, with parliament in France passing a no-confidence vote against Prime Minister Michel Barnier. President Emmanuel Macron stated that he would appoint a new Prime Minister “in the coming days”.

Eurozone economic data continued to point to slow growth. Retail trade volumes declined by 0.5% in October. Meanwhile, data in Germany showed that the manufacturing sector continued to struggle in October, with industrial output declining by 1%, defying economist expectations for an increase.

Data on the US labour market painted a mixed picture last week. The official payroll report for November showed that the US economy added 227,000 jobs, which was slightly higher than the median economist estimate. Meanwhile, the official unemployment rate increased slightly to 4.2%.

The Federal Reserve chair, Jerome Powell, hinted that rate cuts may not be implemented as quickly as previously thought. Powell stated that “the US economy is in very good shape, and there’s no reason for that not to continue”.

Optimism on the real estate sector in China faded last week after data showed that the value of homes sold by the 100 largest developers fell by 6.9% year-on-year in November. Other data was more positive, with a manufacturing PMI indicating that the sector experienced a rise in activity for the second consecutive month.  The services sector continued to expand, but the pace of growth moderated from the level recorded for October.

In Japan, wage growth data showed that the average salary increased by 2.6% year-on-year in October, which was in line with estimates. Household spending in October declined by 1.3% year-on-year, which marked the third month in a row of declining spending. The data brought into question the likelihood of the Bank of Japan (BoJ) hiking interest rates at their December policy meeting.

The Bank of England (BoE)’s governor, Andrew Bailey, stated last week that the central bank may cut interest rates four times in 2025, if the economy develops in line with their central forecast.

The European Central Bank (ECB)’s chief economist, Philip Lane, stated that the ECB will need to start “focussing on upcoming risks, rather than being backward looking”. Lane added that although inflation had fallen close to the central bank’s target of 2%, services inflation needs to come down further.

A governor at the Federal Reserve, Christopher Waller, stated that he is anticipating an interest rate cut in December, but warned that recent data indicated progress on inflation was “stalling”.

GBP / EUR – Current 1.2060 Previous 1.2038

The Pound was broadly unchanged against most major currencies last week. Against the US Dollar, the Pound rose by 0.07%. Against the Euro, the Pound gained 0.18%.