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Market Update
November 20, 2023

The Risk-on Mood Continues

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Week Ending 17 November, 2023

Overall, the risk-on mood has continued as odds of rate hikes remain extremely low while bets for rate cuts have risen dramatically:


  • October headline inflation was almost unchanged at 3.24% y/y. Core inflation rose just +0.23% m/m to 4.03% y/y - helped by a sharp decline in hotel prices (unlikely to persist). Owner’s equivalent Rents, OER (+0.41% m/m) and medical care services rose (+0.25% m/m) were both softer than expected. A word of caution: actual rents rose. Travel prices reversed part of last month’s big gains (lodging -2.5% m/m and airfares -0.9% m/m).
  • October retail sales fell for the first time in seven months but only by -0.1% m/m (Sep: was revised much higher to +0.9% m/m from initially +0.7% m/m). Furthermore, the decline was mostly led by sales of motor vehicles and auto parts (-1.1% m/m) – and almost certainly comes down to the recent UAW strikes. The latter also explains the +13,000 rise in weekly jobless claims. Furniture store sales fell -2.0% m/m while electronics and appliances rose +0.6% m/m.


  • October headline inflation fell strongly to 4.6% y/y (Sep: 6.7%). Contrast this to its peak of 11.1% one year ago! The main driver was a drop in domestic energy prices and was mostly concentrated in the housing component. Last October’s sharp rise in domestic electricity and gas prices dropped out of the annual composition window to be replaced with the latest Ofgem energy price cap reduction. This move accounted for some 75% of the moderation in inflation and its impact is deflationary on housing-related costs. This will be a boost for PM Rishi Sunak – there are more of these effects to come through. He has confidently predicted inflation will reach target (2% to 3%) by year-end. Elsewhere, there were moderations in food prices and overnight hotel stays. Core inflation fell moderately to 5.7% y/y (Sep: 6.1% y/y) as service inflation stays sticky.
  • September home prices fell -0.1% y/y (Aug: +0.8% y/y). In London, they fell -1.1% y/y. The ONS’s gauge of October private rents is rising at +6.1% y/y (vs Sep: 5.7% y/y). No-fault eviction claims (where the Landlord can end a tenancy with no reason and go to court when a tenant refuses to leave voluntarily) jumped +38% y/y in Q3.
  • The labour market remains resilient while wage pressures ease a little: The latest labour market report showed pay growth softening to 7.7% y/y for the 3m to September (from 7.8% y/y for the 3m to August) suggesting peak pay growth has passed. The private sector was the main driver falling to 7.8% y/y (from 8.1%). The public sector however rose to 7.3% y/y (from 6.8% y/y). Considering bonus and one-off payments, public sector pay fell to 7.9% y/y (from 8.2% y/y). This was a smaller drop than expected. Wages remain comfortably ahead of inflation. While vacancies have fallen and companies report an improved availability of staff, in some sectors (software, services, food and beverage manufacturing) shortages remain acute. Employment rose 54,000 in the 3m to September whereas a sharp fall had been expected.


Q3 GDP shrunk -0.5% q/q (Q2: +1.1% q/q). It was worse than expected. Private demand was the main cause (household spending was flat, retail consumption and private investment was -0.6% q/q) and accounts for over 50% of GDP. Private consumption fell -0.2% in the quarter. The economy shrank -2.1% y/y, far higher than the expected -0.6% y/y. A combination of events led to this: the slow recovery in China (biggest export market) and food and fuel imports.


  • October new bank lending declined less than expected to Yuan738.4bn (Sep: Yuan2.31tn).
  • October industrial production grew 4.6% y/y (Sep: 4.5% y/y) and beat the expectation for 4.4% y/y. Local consumption was the main driver aided by several liquidity measures from the government. Industrial production is up 4.1% YTD.
  • Retail sales rose 7.6% m/m. Fiscal revenue grew 2.6% y/y while for the first 10-months, it grew 8.1% y/y (down from 8.9% y/y for Jan to Sep). Fiscal expenditures grew 4.6% y/y.
  • Property remains the one, key bleak spot: October property sales fell at a faster pace vs September, falling -20.33% y/y by floor area. Sales fell -7.8% y/y. Property investment fell -16.7% y/y.
  • Overall, it looks like 2024 will see more fiscal spend bearing in mind the government has already injected more liquidity (via monetary policy) this year. The Chinese economy is slowly picking up – just at different speeds depending on which component. Retail spending, industrial production and industrial profits are sprouting; property and fixed/direct investment is still lagging. The latter are a function of confidence and are unsurprisingly the last links in the chain.


  • October business conditions held firm (nudging up +1 point to +13) despite a drop in confidence. The sales index remains strong rising +2 points to +20, profitability rose +3 points to +12. Employment fell -1 point to +8. Forward orders fell -2 points back to 0.
  • Meanwhile, Q3 wages posted their largest increase on record, rising +1.3% q/q to 4.0% y/y (fastest since early 2009). There were one-off factors e.g. a mandated +5.75% rise in the minimum wage affecting over 2m workers. There was also a one-off +15% pay rise for 250,000 workers in the aged care sector. Some public sectors also saw pandemic-era pay caps removed in Q3. Public sector wage growth accelerated to a 12y high of 3.5% y/y while the private sector rose to 4.2% y/y. Unemployment is still at a low of 3.6%. This keeps pressure on rates in an upward direction.
  • The beta of mortgage rates vs policy rates in Australia is very high because 80% of the mortgage market comprises variable rate mortgages! Hence why the new governor of the RBA is walking a tightrope. If commodities rally, inflation is heading straight up. If they stay subdued – even nosedive – then recession beckons.

A few other noteworthy developments

  • Crude prices fell heavily. There was a big rise in US inventories of +3.6mn barrels. Meanwhile, production remained steady at a record 13.2mn bpd (IAE). In China, crude refining throughput slowed -2.8% m/m to 15.1mn bpd (NBS). Heavy short interest in oil futures, by Hedge Funds, is also driving down oil prices. It doesn’t change the overall view that as GDP picks up traction, energy prices will rise. The winter is upon us. HFs will then start squaring their positions. However, this drop will put downward pressure on inflation for a short while yet.
  • Presidents Joe Biden and Xi Jinping’s diplomatic romance. There was substance to the meetings though somewhat less than the headlines have implied. (1) They are set to announce an agreement that will see China clamp down chemical companies manufacturing the source material used in making opioids, as well as the export of fentanyl to Mexican cartels that then smuggle it into the US. Fentanyl is 50X more powerful than Heroin and 100X more powerful than Morphine. (2) Both nations have resumed military communications which had been severed. Lower-level military ties have resumed recently but nothing above this at top level. Iran is also on the agenda and its nuclear programme. (3) Tech discussions are being resumed given the current paralysis. This involves reopening discussions on AI, the need for improved safeguards and its use in military. To cap a good week for President Xi, Taiwan’s two, key opposition parties standing in the January election have “teamed up” for smoother relations with Beijing. Sun Tzu once said “the best kind of war is where you don’t have to do any fighting”. If these parties win, it establishes an opportunity for a Cross-Straits alliance of sorts. Let’s see if they win!


Source: LSEG Datastream/Fathom Consulting
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