Ear to the Ground

28 March 2024

After the flurry of central bank activity last week, the economic calendar has been a little more sedate.  In the UK there has been little data to breakdown.  The final figure for fourth quarter economic growth 2023 was negative as expected and therefore did little in terms of moving markets.  From the US, meanwhile, we saw the release of durable goods orders.  Here we saw a pleasing improvement in February, increasing 1.4% on the month compared to -6.9% in January.  Behind the headline figure, there was a meaningful improved in new orders for motor vehicles and parts, machinery and primary metals.

In Europe meanwhile, in particular Germany, it would appear that the consumer remains in a weak position, or an uncertain one at least.  The release of consumer confidence data for April showed a marginal improvement compared to the previous month, but still revealed a negative attitude towards the propensity to spend.  There was, however, still an elevated positive propensity to save.  The ability to save should be taken as a positive, and perhaps reflects the higher income being earned through wage increases.  Saving however does not help economic growth, at least for now, but perhaps will from an inflation standpoint.

Although a lagging indicator now, the desire to save flowed into what was very weak retail sales data for the country.  To February, they fell by 2.7% year on year, significantly worse than the consensus forecast of a 0.8% fall and the January reading of -1.2%.  The month of February was particularly weak, with a fall of 1.9% in sales compared to an expected increase of 0.3%.  Elevated inflation, along with higher borrowing costs, were cited as two reasons.

Meanwhile, one of the key takeaways from a speech given by US Federal Reserve member Christopher Waller was the statement that he believes “there is no rush to cut the policy rate” right now.  Recent data, including the latest ‘sticky’ inflation, leads him to believe “that it is prudent to hold this rate (interest) at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2%.”

What certainly won’t be helping is the rise we have seen in certain agricultural commodity prices.  Perhaps fitting as we head into the Easter weekend, the price increase seen in the cocoa spot price has been nothing but stratospheric.  Since the turn of the year alone, the S&P GSCI Cocoa Spot index has risen by 134.58% in US dollar terms!  Blame is attributed to poor crop harvests, but it does beg the question are there similar situations elsewhere.  As someone who gave up chocolate for lent, I hope the cocoa price falls back sooner rather than later.

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