Market Update -18th December 2024.

China’s retail sales data for November painted a mixed picture on Monday, with growth coming in below expectations at 3% compared to the same period a year ago. While October’s figures showed a stronger 4.8% rise—boosted by the Singles Day shopping festival—it seems consumer sentiment remains cautious, with contributing factors including the ongoing property sector downturn and persistently high unemployment rates.

However, the early arrival of Chinese New Year in January 2025, coupled with record stimulus measures recently announced that are aimed at revitalising the economy, could spur a rebound in consumer demand as the year begins. Although the impact of these measures will take time to ripple through the economy, they may set the stage for a stronger start to 2025.

Recent data also offers a nuanced view of China’s property sector, suggesting both ongoing challenges and yet potential signs of recovery. According to China’s National Bureau of Statistics, new home prices fell by 0.2% month-on-month in November—marking the smallest decline since mid-2023. This moderation indicates that the sector could be bottoming out, with prices beginning to stabilise. This is despite that actual investment in Chinese properties continued to edge down to -10.4% year on year to date.

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In the Eurozone, recent data shows a mixed picture for December: the manufacturing sector remains firmly in contraction, while the services sector saw notable improvement. The Manufacturing PMI held steady at 45.2, but the Services PMI climbed to 51.4 from 49.5 in November, reaching a two-month high.

Inflationary pressures remain a concern, particularly in services where input costs have risen for the third consecutive month due to higher wage agreements. Businesses have been passing these increased costs onto consumers, exacerbating inflation, and ultimately have contributed to the European Central Bank’s (ECB) overall cautious approach to monetary policy earlier this month (when they opted for a smaller 25-basis-point rate cut).

In the UK, private sector job cuts in December reached their highest level in nearly four years, reflecting softer demand, rising employment costs, and tighter profit margins for businesses. However, strong growth in private sector wages has driven a fresh increase in overall wage growth (excluding bonuses).

UK inflation data for November showed a rise to 2.6% year-on-year, up from 2.3% in October, in line with market expectations. The increase was primarily driven by higher costs for fuel, clothing, and rising ticket prices for events like concerts and theatre performances. Core inflation, which excludes volatile items such as food and energy, and is more closely watched by policymakers stood at 3.5%, slightly below forecasts. Despite aligning with expectations, the increase—combined with recent data indicating faster wage growth—suggests that market participants believe the likelihood of an interest rate cut at Thursday’s meeting remains slim.

Over in the US, retail sales beat expectations for the month of November, increasing by 0.7% after a revised 0.5% in October. The labour market remains resilient, marked by exceptionally low layoffs and robust wage increases. This strength, combined with solid household balance sheets, is bolstering consumer spending and helping to sustain economic growth.

Still to come this week we have interest rate decisions from the Bank of England, Federal Reserve and Bank of Japan, Japan’s CPI and UK retail sales.

Nicola Tune, Portfolio Specialist