Macroeconomic View – French unemployment down

French ILO unemployment dropped unexpectedly from 9.6% to 8.9%. It was further proof of the strength in the French, and subsequently, the European economy.

European equities lost 1.5% briefly after the US inflation report was released, with figures higher than expected. The market recovered, but the move is indicative of the factors that affect traders.

UK

RPI inflation year-on-year for January fell marginally from 4.1% to 4%. PPI output for the same period also fell, by 0.5% to 2.8%, below estimates for 3% as PPI input dropped 0.7% to 4.7%, above estimates for 4.2%. Retail sales year-on-year for January increased marginally to 1.6% from 1.5%. The figure marked the worst start to the year since 2013, significantly undershooting consensus estimates for 2.6%. CPI was stable at near 5 year highs in January at 3%, staying above expectations for 2.9%. The DCLG House Price Index for last month fell slightly to 4% from 4.1%, while the Rightmove House Price Index for February increased from 1.1% to 1.5%. Meanwhile, Theresa May has appealed for a new security treaty between the EU and UK after Brexit, despite being offered a substantial concession on the remit of the European Court of Justice.

US

US consumer prices rose by more than projected in January as apparel costs jumped the most in nearly three decades. CPI inflation rose 0.5% month-on-month, up from 0.2% in February, translating into a 2.1% year-on-year move. The NFIB Small Business Optimism Index started 2018 on a positive note, increasing 2 index points to 106.9 in January. The percentage of respondents reporting that now is a good time to expand increased 5% to 32%, the highest reading in the survey’s history. The ability to source quality of labour was the most important issue for respondents. Retail sales disappointed in January, falling -0.3%, down from 0.4% in December, the biggest decline in 11 months. Core retail sales were flat but December’s initial recording of a 0.4% gain was revised down to 0.1%, suggesting the estimate for Q4 consumer spending could be lowered.

EU

The most significant news out of Europe was GDP growth for Q4 2017.Eurostat data showed that GDP rose by 2.7% year-on-year in the Euro area, in line with expectations and unchanged from the Q3 figure. The revival of industrial production in the Eurozone has been an important component of growth; the latest figures for December showed a 5.2% year-on-year growth, significantly up from November’s 3.7% figure and ahead of estimates for 4.2%. German growth remains the key driver in Europe, with GDP growth in Q4 2017 at 2.9% year-on-year, up from 2.8% in the previous quarter. Italian growth was relatively lacklustre at 1.6% year-on-year for the same period, an area that will come under scrutiny as the country gears up for general elections in March.

Emerging Markets and Japan

In Japan, Prime Minister Abe has nominated Haruhiko Kuroda to continue as governor of the BoJ, which would make him the first person to serve a second term since 1961. Q4 preliminary GDP came in at 0.5%, down from 2.2% and below estimates for 0.9%. However this marks the economy’s longest streak of growth for 28 years. Year-on-year imports for January fell from 14.9% to 7.9%, while exports increased from 9.3% to 12.2%. In China, new Yuan loans in January surged from 584bn to a record 2.9tln. The January figure is always significantly higher than December’s as Chinese banks front-load loans early in the year. In India, both manufacturing and industrial output fell from 10.7% to 8.4% and from 8.8% to 7.1% respectively. Inflation also dropped by 0.74% to 2.84%.