UK Economy Contracts While US Inflation Slows

UK Economy Contracts by 0.2% across Q3.

While UK growth has come in slightly better than expected this morning, today’s print appears to be the prelude to the UK going into a recession by Q4.?Quarter-on-quarter GDP contracted -0.2% (ahead of expectations of -0.5%) while annualised growth for Q3 hit 2.4% again surpassing expectations of 2.1%. Nevertheless, as detailed, Q3 represented a contraction from Q2 and thus a widely expected contraction in Q4 will see the UK enter a technical recession by the end of this year.

Today’s print comes just days after the Bank of England warned of what could be the longest recession for the best part of a century with eight consecutive quarters of contraction and unemployment rising to 6.5% (a meteoric rise from the current levels of 3.5% which are amongst some of the lowest on record).?

Q3’s contraction comes as households grapple with falling real wages, rising mortgage payments, and plummeting consumer confidence. Indeed, these trends were reflected with the a considerable contraction in consumer-facing services. This comes as the production sector fell 1.5%, representing a seventh consecutive quarterly contraction , as manufacturing?plummeted 2.3%.

Market reaction to US CPI Data

Yesterday’s primary market focus was centred around US CPI data which came in below expectation, sending stocks rallying and momentum away from the USD as the DXY lost around 2% during the afternoon’s session.

Headline Inflation (annualised) came in 0.3 percentage points below the general market consensus of 8% as oil pries continued to slide.

Core CPI also came in 0.2 percentage points below the general market consensus of 6.5% and down 0.3 percentage points from last months print.

Investors took yesterday’s print as an indication that the Fed will be less inclined to make more hawkish rate hikes moving forward, with expectations of a 50bpt hike at the next meeting gaining traction. This follows Powell’s comments last week which indicated that the Fed may look to slow their hikes, following their four consecutive 75bpt hikes. One global market strategist said that “Jerome Powell and equity markets will breathe a sigh of relief that inflation is finally moving downwards and coming in below expectations.”

Money markets also re-adjusted their expectations of the Fed’s rate hike course with expectations that the CB’s terminal rate will hit around 4.8% in May 2023, a considerable downward revision from previously predictions of 5%.

Bond yields also came off, with the benchmark 10-year falling some 30bpts in the US, as inflation anxiety eased.?

IMF Chief: Global Inflation May Be Reaching Its Peak

The slowdown in inflation in the US comes as the head of the International Monetary Fund, Kristalina Georgieva stated that global inflation may be close to its peak. Earlier this week, speaking at COP27, Georgieva stated that “It is very possible that we are peaking,” with “central banks [being] very united on fighting inflation as a top priority and rightly so.” The IMF currently predict global inflation to peak at around 9.5% this quarter, before easing off to around 4% by 2024.

Spanish Village for €260,000??

An entire Spanish village has just gone on sale for a grand total of €260,000 with the prospective owner being able to lay claim to 44 houses in addition to a church, a school, a hotel and some other fairly sized municipal buildings. The village, Salto de Castro, lies in north-western Spain not far away from the boarder of Portugal and has been abandoned for thirty odd years.

The Current owner Ronnie Rodríguez had grand plans to convert it into a tourist honeypot, however wider macro-economic issues hindered his vision with the village remaining more or less untouched. Indeed, according to one source noted on the BBC “"The investment required in order to make the village 100% workable and to become profitable would not exceed €2m”.

There are an estimated 2,900 empty hamlets across Spain and the Spanish government has been known to offer villages for free on the basis that buildings are preserved or restored.

In the case of Salto de Castro, reports suggest that a deposit for the asking price has already been put down.

It may be of interest to note that in 2016 the North Yorkshire 2,000-acre village of West Heslerton went up for sale for ￡20m. The village had a mansion, a pub, a petrol station as well as 43 houses and was purchased by a property investment company, Albanwise later that year.