In Focus: UK GDP, US CPI, Czech Elections and The Exodus of Millionaires

UK GDP Grows Unexpectedly in November?

Markets reacted positively this morning to UK GDP coming in 0.3 percentage points above expectations, as data indicated that the economy grew 0.1% over the course of November 2022. November’s higher-than-expected growth follows that of October’s when market’s rallied on a 0.5% print which similarly surpassed expectations. As such, notwithstanding the fact that December’s growth figures are not released for another month, the prospect that the economy may have experienced growth, rather than a contraction, across the whole of Q4 would be an encouraging sign, particularly given that the BoE were forecasting eight consecutive quarters of economic contraction starting in Q4 2022.

According to the ONS, growth in the telecommunications and computer programming sectors helped push growth, as did pubs and restaurants which experienced an uptick in growth, assisted by the World Cup. ????

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US CPI Meets Expectations

Yesterday saw US CPI meet expectations across the board as headline hit 6.5% while core hit 5.7% on an annualized basis for the month of December. Regarding headline, the level of in inflation dropped 0.6 percentage points from November’s print of 7.1% and is now a sizable way down from June’s highs of 9.1%. Indeed, this was the smallest 12-month increase since the period ending in October 2021, indicative of how the rate of inflation continues to be being driven down. This comes as energy inflation eased while the US also saw a slowdown in the rate of food-price inflation. Indeed, regarding energy, the US Bureau of Labour Statistics wrote: “The index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes.” On a month-on-month basis, headline CPI (which includes food and energy) actually fell 0.2 percentage points from 0.1% to -0.1% driven by falls in the prices of wholesale energy subsequently passed on to the consumer .

Fed Rate Hike 1st February: Expectations of 25bpt Hike Grow

Going into the data release, money markets had priced in some 31bpts for the Fed’s rate hike on 1st February, however by the end of the session this had subsided to 27bpts meaning that markets have given greater credence to the view that the Fed will opt for a 25bpt move. This also saw expectations relating to the terminal rate ease too, with the general market consensus now looking at a terminal rate of 4.9%. Nevertheless, only recently the Fed were looking at a terminal rate of between 5.25% and 5.5% and warning markets that they may need to keep rates higher for longer.

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Market Reaction: Equities Rally as Treasury Yields and the DXY Falls

Following the US CPI print, equities rallied as treasury yields and the DXY fell. For instance, bullish momentum saw the Dow Jones close 0.64% higher, while the S&P 500 and Nasdaq appreciated 0.34% and 0.64%, respectively.

In Europe, the Stoxx 600 closed 0.63% higher – its highest since late April – while more globally the MSCI world index closed 0.8% higher.

Meanwhile, the US 10-year fell just shy of 12.9 basis points to 3.427% as the 2-year which is more sensitive to short term interest rate expectations closed to 3-month lows.

As the prospect of a 50bpt rate hike subsided, a dollar-off move saw the DXY deprecated to just shy of seven-month lows. ?

Czechs Go to the Polls

Today will see Czechs head to the polls for the presidential election where eight candidates are trying to contest one another for the role of Head of State. While the incumbent, Milos Zeman will lose his seat (given the two-term limit), no single candidate is expected to win a majority, and thus it is forecast that the vote will head to a subsequent runoff election. The 78-year-old euro-sceptic Zeman has served two consecutive five-year terms and has come under increasing pressure given his stance on trying to create closer ties with China and Russia. There is also widespread concern that he is overstepping his constitutional powers and thus it is expected that the next President will want to demonstrate a clear break with the past.

More Millionaires Departing the UK

According to Henley & Partners, the UK saw a net outflow of 12,000 individuals with assets and cash worth over the equivalent of $1m USD since 2017, with around 1,500 of these individuals leaving the UK in the last year. It is believed that less advantageous tax incentives, political turmoil and visa uncertainty have all fed into this exodus.

Additionally, according to the Telegraph the number of people claiming non-dom tax status, has fallen by 40% as reforms have made the tax incentives less advantageous. This comes as Labour have announced plans to abolish non-dom status, which given their position in the polls, may be off putting for wealthy individuals who might otherwise have considered applying.

R.G