Investments

Market round-up 17-21 February

Thomas Watts

In a week that saw the new British £20 banknote revealed by the Bank of England, depicting a self-portrait of the romantic painter J.W Turner; for many in the City, it has been the influx of domestic economic data this week that has proven truly noteworthy.

 

This week

In a week that saw the new British £20 banknote revealed by the Bank of England, depicting a self-portrait of the romantic painter J.W Turner; for many in the City, it has been the influx of domestic economic data this week that has proven truly noteworthy. 

Whilst the week certainly brought the Rain in the form of Storm Dennis, data released on Tuesday by the Office for National Statistics showed that some Steam and Speed was also coming back to the domestic economy. Average weekly earnings have now reached pre-crisis levels, hitting £512, their highest since March 2008. More good news for the UK’s labour market came in the form of 180,000 further vacancies filled, hitting a record high 32.93 million people now in work. 

Of course, rising wages only paint half a picture, with the rate of inflation framing such numbers well. With this in mind, CPI data was conveniently released the following day, detailing the change in the price of goods and services purchased by consumers. Inflation jumped to 1.8% from 1.3% a month earlier but still below the 2.1% from January 2019, with utilities and housing costs being the largest contributor. The jump in inflation did little for sterling which softened gradually throughout the week, settling below $1.30 on the dollar. 

The chasm between inflation and wages often has a profound effect on consumer spending and with a growing gap between the two it is no surprise that retail sales have shown signs of rebounding. The latest data shows that January recovered from the falls in the previous two months, driven by food retailers which saw sales rise 1.7% during the period, while non-food retail sales also rose, increasing by 1.3% for the month. 

On a more global level, signs show that the fallout from the Coronavirus outbreak is starting to take its toll on the global economy, this time from Japan. The week saw the Bank of Japan feel the compulsion to indicate more strongly that it is no longer inclined to reach for its so far elusive 2% inflation target. After years of battling inflation, the virus sweeping through the far east looks to be the final nail in the coffin for such unattainable targets with the bank now set to focus more on just defending its economy from a sharp downturn. Data painted a grim picture for Japan, showing that the trade-reliant economy shrank at the fastest rate in six years during the final quarter of 2019. With the Coronavirus destroying local supply chains and creating uncertainty in the region, some market commentators believe that the Land of the Rising Sun is heading for a technical recession, defined by two quarters of negative growth, in the coming months.

 

The week ahead

Whereas in most other years the coming week would round off February, for 2020 that’s not the case as it is a leap year, or for those who prefer their meteorological jargon, an Intercalary year. 

With last week’s positive news that average earnings in the UK are back up above pre-crisis levels, it will be salaries, not ‘intercalaries’, that will form the basis of the Bank of England’s Monetary Policy Report Hearing, scheduled for Tuesday. During the hearing, which will be held in front of Parliament, Mark Carney and his fellow MPC members will testify on inflation and the economic climate, given an added impetus from recent stable economic data. The hearings are a few hours in length and can create volatility, especially in currency markets. 

Attention should switch across the pond on Thursday as the US releases its Core Durable Goods Orders. With the US economy powering ahead of the rest of the developed world, many analysts will be hoping for a continuation of the trend. The actual data will measure the change in the total value of new purchase orders placed with manufacturers for durable goods, excluding the volatile aerospace sector. Acting as a leading indicator of production, rising purchase orders often indicate that manufacturers will increase activity as they work to fill their growing order book. 

The week, but not the month, will be rounded off on 28 February and will include a raft of European economic data, led by German prelim CPI. With economic growth anaemic to say the least, inflation has remained flat to non-existent for a while now. With trade war headwinds damaging the export heavy German economy and dragging down the Euro, it will be interesting to see what effect, yet more weak data for the Eurozone could have.

 

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in February 2020.