UK redundancies at record high

Chris Scicluna

Equities in the red as mounting coronavirus cases trigger new restrictions
Wall Street initially opened higher yesterday on (yet again) revived hopes that Congress might agree a limited US fiscal stimulus agreement ahead of the holiday break. But those gains were soon erased as the focus returned to the relentless rise in coronavirus cases across much of the world. On that score, London will be subjected to the UK’s tightest tier 3 restrictions from tomorrow, while New York’s leaders warned of a possible need for a second full lockdown if case numbers and hospitalisations continue at their present pace. And with the trend of new cases and deaths continuing to rise, the Netherlands followed the weekend announcement in Germany with a new 5-week lockdown closing non-essential stores, gyms, museums and schools. Against that backdrop, the S&P500 finished in the red for a fourth consecutive session – albeit down just 0.4% – and the 10Y UST yield closed below 0.90% after testing 0.94% when stocks were on their highs.

US equity futures have traded broadly sideways since Wall Street went home and as Joe Biden moved a step closer to assuming the Presidency with his election win confirmed by the Electoral College. However, taking the lead from Wall’s Street’s losses, equity markets have declined across most of the Asian-Pacific region today. In Japan, the TOPIX fell 0.5% – fairly typical of losses in the region – but China’s CSI300 bucked the trend and rose 0.2% after key activity indicators continued to strengthen in November (see below). In Australia, the ASX200 fell 0.4%, led by weakness in materials and energy stocks, after the release of a report stating that China had banned the import of Australian coal. According to the report in the stated-owned newspaper Global Times, the NDRC has given major power companies approval to import coal without restrictions, but not from Australia, even as Australian ships remain unloaded at Chinese ports.

China’s key economic activity data strengthen in line with expectations
Today the NBS released the remainder of the China’s key activity indicators for November. In summary, as had seemed likely given recent upbeat trade and PMI reports, growth improved across all of these indicators and by more-or-less the quantum expected by the market.

Turning first to IP, output increased 1.0%M/M in November, nudging annual growth up by 0.1ppt to 7.0%Y/Y – the fastest pace since March 2019. As a result, after a poor start to the year, production for the year-to-date increased 2.3%YTD/Y. In the detail, growth in manufacturing activity increased 0.2ppt to 7.7%Y/Y. All major industries reported growth this month, with the standouts being the machinery industry (where growth is now running at 18.0%Y/Y), the metals industry (13.8%Y/Y) and the pharmaceuticals industry (growth rising sharply to 13.6%Y/Y). Outside of manufacturing, growth in mining activity slowed 1.5ppts to 2.0%Y/Y, but growth in power generation increased 1.4ppts to 5.4%Y/Y.

The news from the demand side of the Chinese economy also improved in November. With Singles’ Day shopping reportedly having enjoyed a new record, growth in retail spending increased 1.3%M/M, lifting annual growth by 0.7ppt to an 11-month high of 5.0%%Y/Y – a strong result considering that CPI inflation fell 1.0ppt during the month (although core inflation was steady). In the detail, spending on communications equipment was up almost 44%Y/Y while spending on petroleum remained down 11.0%Y/Y. Unfortunately, even with the pick-up in November, retail spending was still down 4.8%YTD/Y reflecting the sharp contraction in spending at the beginning of the year caused by the pandemic.

Moving to the business sector, investment spending on non-rural fixed assets increased 2.8%M/M in November, causing year-to-date growth to increase 0.8ppts to 2.6%YTD/Y. Private sector investment increased 0.2%YTD/Y – up 0.9ppts and the first positive reading this year – while growth in state investment increased 0.7ppts to 5.6%YTD/Y. Coming off sharp declines earlier in the year, improving trends were evident across almost all industries. In the manufacturing sector, investment was still down 3.5%YTD/Y – albeit a 1.8ppts improvement on the previous month – with positive year-to-date growth still only recorded in the pharmaceuticals (27.3%YTD/Y) and telecommunications/computer (14.0%YTD/Y) sectors. Spending in the healthcare/social works sector increased a very strong 23.7%YTD/Y while spending in the education sector increased 13.9%YTD/Y. Property development increased 6.8%YTD/Y, up 0.5ppts from last month and fractionally above market expectations. Finally, with the economy firmly on an expansionary path, the urban unemployment rate declined a further 0.1ppts to an 11-month low of 5.2% in November.

The strong performance of the economy means that the PBoC will probably continue to maintain current policy settings despite the current low level of CPI inflation. Indeed, today’s 1-year MLF liquidity operation was conducted at the same 2.95% interest rate that has prevailed since the rate was last lowered in April.

Record UK redundancies despite belated extension of Job Retention Scheme
The UK government should regret its earlier decision – ultimately reversed at the last minute in the face of the second wave of pandemic – to signal strongly to firms that its Job Retention Scheme would be brought to an end in October. For many firms, repeated messages that the wage subsidies would be replaced with a less generous scheme encouraged them to press ahead with job cuts over recent months. Indeed, according to this morning’s figures, redundancies rose a record 217k in the three months to October to a new series high of 370k, well above peak in the aftermath of the Global Financial Crisis in 2009. Meanwhile, the unemployment rate in the three months to October rose to 4.9%, 1.2ppts above the level a year earlier. And the employment rate fell 0.5ppt in the three months to October from the previous quarter to 75.2%, 0.9ppt below the level a year earlier. And the most timely data suggest that the number of people in work continued to decline last month, with the number of people on payrolls in November down 819k from February’s pre-pandemic level and the lowest level since March 2017.

Among other data, the claimant count – which includes those working on low incomes or hours as well as those who are not working – rose 64.3k in November to 2.7mn, more than reversing the drop the prior month, with the equivalent rate up 0.2ppt to 7.4%. But vacancies continued to improve, with the total of 547k in the three months to November up 110km from the previous quarter but still roughly one third lower than a year earlier. In addition, with the return of some workers from furlough leading to an increase in total hours worked (up a record 12.3% in the three months to October), annual growth in employee pay also improved. Growth in average weekly earnings in the three months to October rose to 2.7%Y/Y to be up 1.9%3M/Y in real terms. And, excluding bonuses, growth in earnings rose to 2.8%3M/Y, just 0.1ppt shy of the rate in the three months to February. Of course, pay growth continued to vary significantly by sector. Finance and business services saw the strongest rates (4.6%3M//Y) while pay growth in construction remained negative. Pay growth in wholesaling, retailing, hospitality and manufacturing turned positive, but those categories since affected by renewed lockdown measures – particularly hotels and catering – are bound to have shifted back into reverse last month.

Factory data the US focus today as investors await tomorrow’s FOMC news
As investors await the Fed’s policy announcement tomorrow, today’s key economic news will centre on the factory sector. First up is the IP report for November, which Daiwa America Chief Economist Mike Moran expects will point to only modest growth in output of about 0.2%M/M. A little later, the New York Fed will release its manufacturing survey for December, which last month pointed to slowest expansion since August. Export and import price readings for November round out the economic diary.

No surprises from RBA minutes; consumer confidence and jobs rising
There was little reaction to the release of the minutes from this month’s RBA Board meeting, as had seemed especially likely given the lack of change in the Board’s post-meeting statement. Members noted that the recovery had established ‘reasonable momentum’, with the recovery in the labour market more advanced than expected, and that recent coronavirus vaccine news could reduce downside risks to the medium-term outlook. Even with these positive developments, it was noted that a substantial tightening in the labour market would be required to lift wages growth and inflation outcomes over the medium term. As a result, the Board reiterated that remains committed to not increasing the cash rate until actual inflation is sustainably within the 2-3% target range (which is not expected to occur for at least 3 years), while keeping the size of the bond purchase programme under review with a view to adding to the programme if necessary.

On the data front, the ANZ-Roy Morgan consumer confidence index increased by 1.7%M/M to 111.2 last week, marking the best reading since November last year (the long-running monthly Westpac consumer sentiment index is already at a 10-year high). The largest improvement came in the index measuring households’ financial position compared with a year earlier – now at its highest level since March – while the near-term outlook for the economy was also perceived to have improved. In other news, the ABS reported that its experimental indicator of payrolls – based on tax data – pointed to a further 0.4% increase in jobs over the fortnight to 28 November. This continues the renewed uptrend seen since early October and has reduced the decline in jobs since mid-March to just 2%, compared with a peak of over 8% in mid-April.

Kiwi consumer confidence returns to pre-pandemic level
Kiwi consumers also appear to be feeling more chipper, with the Westpac consumer confidence index rising a sharp 10.9pts to 106.0 in Q4 – the highest reading in 12 months but still a little below the long-term average for the survey (as has been the case since early 2018). The largest improvement came in the forward-looking components of the survey, causing the expectations index to increase 14.4pts to 112.7 – a more than 3-year high. 

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