Ear to the Ground

29 November 2024

There has been little of note on the UK economic front this week.  Car production remains in the doldrums, where year on year production fell sharply.  This isn’t necessarily just a sign of consumer weakness, with the actual industry going through change as it redesigns itself for the growing output of zero emission cars.  Certainly not enough news, however, to move markets.

This meant that direction was taken from the US, where there was a little more data for investors to get their teeth into.  PCE (Personal Consumption Expenditures), which is the US Federal Reserve’s preferred inflation measure, nudged up a little to post a rise of 2.3% year on year to October, which was ahead of the previous reading of 2.1%.  This had been expected, however, with the rise attributable to base effect, i.e. where we were 12 months ago. 

Given this, it was the Minutes of the central bank’s previous policy setting meeting that were in focus.  These appeared to be supportive of further interest rate cuts moving forward but acknowledging that this was likely to be at a measured pace and contingent on economic data moving forward.  This perhaps alludes to why investors are following key data releases very closely, with volatility around these being seen if there are any deviations from expectations, particularly in the fixed income market.  With the potential for further rate cuts still being mooted, 10 year bond yields edged lower in the US and UK. 

The fall in yield was more pronounced in Germany.  Whilst there was a slight pick up from the previous month in the inflation rate, coming in at 2.2% versus 2%, this was below the consensus forecast of 2.3%.  At the same time, consumer confidence was confirmed as weakening and retail sales were weaker.  A positive environment for fixed income, not necessarily for the economy.

President Trump has been up to his usual antics this week, suggesting a 25% tariff on all products coming into the US from Mexico and Canada.  As you would expect, neither country has taken kindly to this, especially given the level of trade which moves between these countries.  Are these future policies, or simply shots across the bows to get people thinking?  Proof will be in the eventual eating of the pudding, as they say.