Ear to the Ground

01 September 2023

With UK economic data thin on the ground focus fell on the Nationwide House Price index this week.  This showed that house prices had fallen 0.8% in August, larger than the consensus forecast fall of 0.3%.  Year on year, UK house prices are now 5.3% lower than they were.  This was the largest price decline since July 2009.  Housing market activity was also shown to have decreased, with mortgage approvals reportedly 20% below the average of 2019 which of course was pre-pandemic. 

In the US meanwhile there was more data to analyse.  Here we saw the release of the personal consumption expenditures (PCE) and core PCE data, the latter being the preferred inflation measure of the US Federal Reserve.  This, which excludes the more volatile categories of food and energy, rose by an annualised 3.7% in the second quarter, easing from a figure of 4.9% in the first quarter.  This was roughly in line with the consensus forecast of 3.8%.  This added some comfort that inflation continues to head in the right direction, although the previous convening of central bankers at Jackson Hole continued to play on the minds of investors, where the conclusion from appears to be that interest rates could remain higher for longer.

The other area of the US economy under close scrutiny was the labour market.  First up we had Job Openings and Labor Turnover Survey (JOLTS) data.  With regard to job openings, this declined by 338,000 from the previous month.  With this being the third consecutive month of a decline in job openings it would suggest that the jobs market could be finally slowing.  We also had the release of the JOLTS job quits data.  Here the number of people quitting their jobs decreased by 253,000 from the previous month, taking the total number quitting their job down to the lowest which we have seen early 2021.  This is perhaps due to uncertainty about the economic outlook growing.  This could be a further comforting sign for the US central bank.  If people are becoming more worried about moving jobs and therefore staying in their current job, there is less incentive for their employer to have to pay them more.  We may, therefore, start to see a moderation in wage growth, with the rate of the latter having been a concern for the Federal Reserve for some time now.  It appears too early to call the battle against inflation to have been won, but perhaps central banks breathed a little slower this week.

Finally, we finish with China.  Concerns remain abound.  Woes continue in the property sector and the stock market has continued to languish.  The authorities made an attempt to revive the latter and boost investor confidence.  Stamp duty on stock trading was halved and transaction handling fees were also reduced.  Margin requirements to trade were also cut.  The regulator also approved the launch of 37 new retail funds, with more innovative index products expected.  They are becoming more relaxed on share buybacks and a slowdown in the pace of initial public offerings.  The market initially rallied strongly on the back of this news, over 5%, but this quickly retraced.  It would appear therefore that further measures are needed to restore investor confidence, but that could need to be economic as much as regulatory.

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