Asian equity markets are mostly higher overnight, especially in Hong Kong and China, supported by reports of easing US-China tensions, liquidity injections by the Chinese central bank and more optimism regarding the country’s property sector and Covid restrictions. Economic data, however, remained soft, with China’s retail sales falling 0.7%y/y in October and industrial production also missing expectations. Japan’s economy unexpectedly contracted by 0.3%q/q in Q3.
UK economic data released this morning showed the unemployment rate at 3.6% in the three months to September, which was up slightly from last month’s 3.5%. Annual average earnings growth was 6.0%, while underlying growth excluding bonuses increased to 5.7%, the highest for over a year. There were signs of moderation in demand with the number of vacancies falling, although it remains high by historical standards. Overall, the data still point to a tight labour market.
The UK data focus continues early tomorrow with the October inflation report. The energy price guarantee scheme means that October’s rise in energy prices is much lower than would otherwise have been the case. Nevertheless, the increase is expected to have pushed annual CPI inflation higher, and our forecast is for a rise to 10.5%. Meanwhile, ‘core’ inflation (excluding food and energy prices) is expected to have fallen modestly to 6.4% from 6.5%. This may be the peak in inflation, although there is uncertainty about what will replace the energy price guarantee next April.
Outside the UK later today, Eurozone Q3 GDP figures are expected to confirm growth of 0.2%q/q. Survey indicators, however, point to more weakness ahead. This morning’s German ZEW survey of investors will likely remain very low by historical standards. That said, we think it may signal an improvement in economic sentiment in November on the back of the recent slide in wholesale gas prices. We forecast the expectations index to rise to -53 from -59.2.
In the US, producer price inflation and the regional NY Fed Empire manufacturing survey are the key releases. The Fed’s Harker is due to speak on the economic outlook, with US policy rates expected to continue rising, albeit possibly at a slower pace from next month. ECB Executive Board member Elderson is also due to give a speech in Frankfurt later today.
The US dollar was broadly steady overnight, holding on to Monday’s modest gains. US 10-year Treasury yields were slightly higher. The pound fell below $1.18 yesterday but has pared some its losses during the Asian session and seen further gains after the release of the UK labour figures this morning which has pushed it back above this level.
