The week ahead 12 August 2024 - Concerns on US growth prospects spook equity investors
What to watch out for in the UK economy and property market this week.
Last week saw volatility for global equity indices, as investors became concerned the US economy might not see the ‘soft landing’ the Federal Reserve had been hoping to achieve. This caused markets to fall earlier in the week. These fears have their roots in a key employment report released at the start of the month – non-farm payrolls – which came in weaker than expected for July. Also, last week saw the final draft of the US PMI index for July, with the figure revised lower from 55.0 in the first estimate to 54.3. However, upbeat data on the number of people registering as unemployed helped steady nerves, causing equity markets to rally on Thursday. In August, in many financial firms a lot of decision makers are away on holiday, so less experienced staff are having to make calls. We will be watching to see whether the volatility continues into September.
Evidence has emerged that the UK economy may have recovered from the shock of the Covid lockdowns in 2020-2021 faster than previously supposed. The ONS has revised upwards UK GDP growth for 2022 from 4.3% to 4.8%. The change reflected better than expected growth for the transportation and professional sectors. Also, the weightings for growth for the various industries were adjusted giving greater prominence to the energy and healthcare sectors. From a property perspective, this means that some businesses, and parts of the public sector, have been growing faster than previously thought which might provide some upside for leasing demand.
This week sees UK data released on pay growth, inflation and GDP, which the Bank of England will be closely monitoring to assess how quickly it moves to cut the Base Rate again. We believe the wages growth figures will show a marked deceleration, although we are only expecting a small decline for inflation. In the Eurozone, the ZEW business sentiment index will be published tomorrow, and we are forecasting a downbeat figure in line with other recent surveys.
Things to watch for this week
Tuesday, August 13th
UK Pay Growth (ex bonus), y-on-y, June
Previous: 5.7%
Forecast: 5.1%
We believe high interest rates will have persuaded firms to be less generous on pay rises, resulting in a small deceleration for wages growth in June.
Euro Area ZEW Index, August
Previous: 43.7
Forecast: 43.2
Given other business surveys have pointed to a slide in sentiment this summer in the Eurozone, we are predicting another decline for the ZEW index.
Wednesday, August 14th
UK CPI Inflation, y-on-y, July
Previous: 2.0%
Forecast: 1.9%
Evidence is emerging that high prices are starting to deter consumers from making certain purchases, leading us to forecast a further deceleration for inflation.
Euro Area Industrial Production, m-on-m, June
Previous: -0.6%
Forecast: 0.7%
We are predicting a return to growth in June after the contraction seen in May, reflecting the volatility seen for this indicator in recent months.
Thursday, August 15th
UK GDP Growth, q-on-q, Q2
Previous: 0.7%
Forecast: 0.4%
After the post-recession rebound for the UK economy seen in Q1, we believe that volatility for retail sales during Q2 probably slowed GDP growth.
