As Chinese Lunar New Year was celebrated around the world this week, economic data took the driving seat in financial markets. In a rare occurrence UK, European and Emerging equity markets outpaced the US, as a persistent US Consumer Price Index (CPI) data release pushed US yields marginally higher and held back equity gains. Importantly, markets continue to shrug off escalation in the Middle East and reports of a ‘troubling’ development of Russia pursuing “anti-satellite capability”.
UK unemployment decreased, even though the number of employees being made unemployed outstripped those being employed. Bank of England Governor Andrew Bailey highlighted the level of economic uncertainty by saying “it is hard to judge if unemployment rate is 3.8% or 4.2%”, “wage forecasts are based on Monetary Policy Committee (MPC) judgement, not models” and in light of the UK being in technical recession, “we are now seeing signs of the beginnings of a growth pick up”. UK wage growth remains elevated at 6.2% but the slowest in 14 months. A good sign for workers as real wage growth (c.+2%) extends its time in positive territory but causes the UK Central bank to scratch its head on the timing of interest rate cuts. UK Gilt yields rose on the unemployment and retail sales data (+0.7% year-on-year, expected -1.4%) but fell after the economic growth data was released; ending the week where it started.
US CPI fell back to 3.1% in January, after a temporary rise in December (3.4%), but higher than forecast (2.9%), much to the disappointment of markets. Food, shelter and new vehicle prices reaccelerated. As a team we have spoken about the importance of shelter, the increase appears to be mystery, as one broker reported, and more than likely temporary. Personal Consumption Expenditure (PCE), the more consumer focused price metric preferred by the US Federal Reserve, is released on the 29th February and may become more important than usual.