Asian equity indices are mixed, trading lower in Japan and China but higher in most other parts of the continent, as investors continue to assess the Covid situation in China. China’s November official PMIs were weaker than expected and remained in contraction territory at 48.0 for manufacturing and 46.7 for non-manufacturing. In the UK, business confidence fell in November (see below), while the British Retail Consortium reported a further rise in shop price inflation, including an acceleration in food inflation to a record 12.4%y/y.
Overnight, business surveys for November were released. They showed overall business confidence falling by 5 points to 10%, the lowest since February 2021 (a 21-month low). Firms’ optimism for the economy decreased for a sixth month in a row and their own trading prospects were also lower. There were tentative signs of less vigorous pay growth, but firms’ expectations for their own prices rose to a new high.
The Bank of England has indicated that further interest rate rises are likely required to bring inflation back down. BoE Chief Economist Huw Pill speaks at an event this morning.
In the Eurozone, the preliminary flash estimate for November CPI inflation will be closely watched. Yesterday saw a bigger than expected fall in Spanish inflation, while German inflation declined in line with expectations. French inflation data this morning was steady. Overall, Eurozone headline inflation looks set to fall for the first time in 17 months to 10.4% from 10.6% in October. As a result, after hiking by 75bp in the last two policy meetings, the ECB may lean towards a smaller 50bp rise in December.
The US Fed’s policy outlook signals have been nuanced. On the one hand, the hiking pace looks set to moderate next month after four successive 75bp increases. On the other, policymakers have indicated that the level of interest rates may end up higher for longer to reduce inflationary pressures. Fed Chair Powell’s remarks on the economic outlook and the labour market this evening will draw the most attention later today. Before that, there are several data releases including an update on the Q3 GDP estimate and the ADP employment report ahead of Friday’s official figures.
Early Thursday, China’s Caixin manufacturing PMI survey is due. The Caixin survey has a smaller sample size than the ‘official’ PMIs released overnight and referred to above, but it tends to capture the activity of smaller private firms compared with the official survey. The consensus forecast is a fall to 48.9 from 49.2.
US Treasury yields were slightly lower overnight ahead of Fed Chair Powell’s speech later today. The US dollar was also broadly softer, although the pound remained below $1.20 and was marginally lower against the euro.
