UK GDP beat expectations in December; German industrial data also robust
- UK GDP rose by +1.0% (consensus: +0.5%) in Q4, after a +16.0% rise in Q3. The gain was led by construction and manufacturing, with services sectors showing a more tepid expansion. The economy shrank by -7.8% YoY. Output is expected to continue rising strongly in the coming quarters, although it will likely not return to pre-pandemic levels until 2022.
- German industrial production was flat MoM in December, but thanks to a large upward revision to the November data, the YoY number rose to -1.0%, the smallest decline since the start of 2019. Manufacturing, notably autos, was strong, whilst construction lagged on tighter lockdown measures.
Soft US inflation data; soft US business and confidence surveys
- US headline and core CPI both came in 0.1% below expectation at 1.4% YoY. Base effects should cause them to rise ~3% and ~2% respectively in Q2, before declining somewhat later in the year.
- The US NFIB small business confidence survey fell to 95.0, its lowest since last May (echoing declining business confidence surveys in Japan and Australia earlier in the week). The University of Michigan consumer sentiment index fell 2.8pt to 76.2 in February versus an expected 1.9pt increase.
Equity market volatility continues to subside and risk markets to drift gently higher
- Global equities ticked higher this week (MSCI ACWI +1.7%), led by Asia (Japan and China up 4-5%). Value continued to outperform Growth at the margin.
- Global yield curves continued to bear steepen, with Germany the underperformer on the week – 30-year yields consolidating above 0% for the first time since last August. Inflation breakevens widened further, with notable strength in short-dated US breakevens thanks to a $3/bbl rise in oil prices over the week.
- The US dollar was broadly, albeit moderately, lower on the week, particularly against high-beta currencies (Scandis, Antipodeans and Sterling in G10; ZAR and Latams in EM).
- Sterling credit spreads registered further tightening over the week, particularly high-beta names (COVID sensitive non-financials and subordinated financials).