Independent Strategy

Macro Matters

On 26 January, the voters of the region of Emilia-Romagna – a long held bastion of the left - will head to the polls.  Such an election would not normally appear on the radar screen of international investors.  But this time it has strong significance as a barometer of the popularity of the current centre-left coalition that was formed in the autumn.

UK economy continued to slow in November.  According to the monthly GDP estimate the economy shrank by -0.3% m/m.  Although the smoothed 3/3m rate still showed a +0.1% rise, this was the slowest pace since fears of a hard Brexit dominated thinking back in the summer and on a y/y basis the +0.6% recorded was the weakest since back in the days of the Eurozone debt crisis (June 2012 to be exact).

Slight undershoot in the December payrolls report, but the 145k jobs created is only modestly below the 164k market guess and while the revisions from November were slightly downward that was a strong report in itself.  Over 12-months revisions are very mildly negative but not showing any real deterioration in trend since the summer.

Germany

9th January, 2020 » German Industrial Production

Germany has just reported much-improved industrial production numbers for November.  In volume terms they jumped 1.1% mom on a seasonally-adjusted basis, better than consensus expectations for a 0.8% rebound.  So the downturn is over?  Don’t bet on it.

Does populism pose a risk to markets in 2019?  Yes! but not from the expected quarter. 2019 brought a surprise on the European front.  The support for traditional parties has been plummeting for a long time.  We call this the European souffle where support for the centre ground continues to cave over time.  Populist parties gained 20% or more of the vote in many national elections this year, thought there were signs of their vote stabilising in the most recent polls.

Better performance from industry during November, IP and manufacturing production both rising 1.1% mom.  Partly this was due to one-offs, following disruptions from the GM strike, which flattered November’s bounce.  There are still a couple of sectors that look weak, notably chemicals and machinery, the latter in particular important given this is basically the capital goods part of activity.

US

13th December, 2019 » US November Retail Sales

Another batch of soft numbers.  Although we saw another m/m rise and a mild upward revision, the y/y growth rates continue to look fragile, particularly when stripping out more volatile items like gas and vehicle sales.  The control group reading in fact dropped to the weakest rate since March, when comparing to the period a year earlier.

China

10th December, 2019 » China November Inflation

The strong upswing in Chinese consumer price inflation in November has a very straightforward explanation.  The swine flu epidemic and the devastation this has inflicted on Chinese pig herds – reducing total numbers by over 40%.  Indeed, meat prices are up 74% yoy, driven by pork which is now up 110% compared to the same period last year.

US Impeachment process looks likely to go on for a little longer than expected.  Pelosi’s initial hope that things could be wrapped up by Christmas, so the Democrats could start the new year on a clean slate, focused on the Presidential primaries and campaign looks hopeful now.  Pelosi has always felt the impeachment process was always driven by the left wingers in the party and never had a credible chance of success.  By delaying the process, it prevents the House from pursuing more important business such as delivering on the campaign promises of the mid-terms.

October retail sales registered a further deceleration in growth.  The control group is still showing a decent rate of y/y expansion but other groups momentum has clearly reversed from the summer pick up.  The industrial production report was bleaker reading.

UK Russia dossier a bit of a non-event.  Attracted some media attention but sources suggest that the content is largely benign.  The main criticisms contained within was that the UK was ill-equipped to deal with this type of interference, largely because they had not expected it.  Seems a little surprising that the PM would veto publication given the content.  There is nothing that screams conspiracy.

Quite a slowdown in credit growth during October, certainly compared to the rate we saw last year.  While the trend for shadow sector deleveraging continues there was also quite a sharp slowing of bank loans.  Corporate bond issuance remained muted while there was a pronounced deceleration in the ‘other’ category, which now encompasses local government bond issuance.

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