The week ahead: UK and US Q3 GDP, UK public finances, US PCE and Nike results
- UK Q3 Final GDP – 22/12 – since the last iteration of UK Q3 GDP, the pound has come under pressure, largely due to concerns over how the current raft of restrictions will impact the Q4 GDP numbers. Nonetheless we still saw a significant slowdown in Q3, from the rebound seen in Q2. This shouldn’t have been too much of a surprise given the delay to reopening the economy, however it was still disappointing when the numbers came in below expectations of 1.5%, falling back to 1.3%. It is true that the so called pingdemic caused a significant amount of disruption, however you would still expect to see more resilience in the wake of the relaxation of those restrictions. Private consumption is still expected to remain resilient. Manufacturing, particularly new car production was, and is likely to remain a drag due to the chip shortages, along with maintenance shutdowns in the North Sea. Expectations are for there to be no change to the previous adjustment of 1.3%.
- UK Public Finances (Nov) – 21/12 – despite the end of furlough in September, public sector borrowing has continued to remain high, although it’s still dropped sharply from the levels seen at the end of Q1 and beginning of Q2. In October PSNB excl banks, fell back to £18.8bn, down £2.9bn from the same month a year ago, but still well above expectations. This higher-than-expected number hasn’t been helped by interest payments which have risen sharply in recent months due to higher inflation. Higher spending on vaccines was also a factor and is likely to leak into the November numbers as well as the booster campaign gets ramped up further. Borrowing for November is expected to remain highs at about £20bn.
- US Q3 Final GDP – 22/12 – the second iteration of US Q3 GDP was a bit of a mixed bag when it was released a few weeks ago, seeing a modest upward revision from 2% to 2.1%. This isn’t expected to change in this week’s final adjustment. It was widely expected that we’d see it weaken from 6.7% in Q2, however instead of slipping to 2.6%, it slipped back to 2%. There have been a multitude of reasons for this sharp slowdown, notwithstanding a combination of rising delta variant cases, weaker demand, and supply chain disruptions acting as a brake on the economic rebound during the quarter. One notable takeaway from the first two quarters of this year has been the resilience in personal consumption which rose 11.4% in Q1 and 12% in Q2. This slowed sharply in Q3 to 1.7%, which was still slightly better than the 0.9% expected but was still indicative of how higher prices and falling consumer confidence are starting to affect demand in an economy that is extremely price sensitive where consumers are concerned.
- US Core PCE Deflator (Nov) – 23/12 – the recent headline CPI and PPI numbers haven’t been good news for the Federal Reserve’s transitory inflation narrative, so it wasn’t too much of a surprise when Fed chair Jay Powell suggested retiring the word when it came to determining future Fed policy. In essence the change was more a case of acknowledging that the phrase was becoming meaningless. Last weeks Fed meeting, which saw the central bank accelerate its taper program appears to be a belated acknowledgement that inflation is likely to be much more durable than first thought. If this week’s core PCE sees another strong surge to 31-year highs in the same way that the recent headline CPI numbers have done, we can expect to see much faster action on tapering in the weeks and months ahead. In October the PCE Deflator hit a 30 year high of 5%, and is expected to move above 5% in November, while the core deflator pushed up to 4.1%, and is forecast to edge even higher towards 4.5%, and levels last seen in 1990.
- US Personal Spending (Nov) – 23/12 – despite the slowdown in the US economy in Q3, consumer spending has remained relatively robust in the past few months. In fact, despite the slowdown in Q3 GDP relative to Q2, the personal spending data has largely been similar on a quarter-on-quarter basis. In October personal spending rose by 1.3%, up from 0.6% in September, despite concerns over higher prices. This trend appears to be being accelerated by concerns over supply chain shortages which is prompting consumers to start their Christmas shopping early. In a way this is encouraging as it suggests that for now consumers appear immune to rising prices, however the big question is to how long that can last if prices continue to move higher, and crimp spending power. Much will depend on personal incomes, and with 11m vacancies in the US labour market you would expect these to remain resilient. Personal spending is expected to rise by 0.6% and personal income by 0.5%.
- Nike Q2 22 - 20/12 - After a solid Q4, Nike’s latest Q1 numbers reverted to type with supply chain disruptions hitting sales, prompting the company to cut its guidance for the rest of the year which sent the shares to three-month lows at the end of September. Factory shutdowns in Vietnam hit production meaning that the company wasn’t able to meet demand, however that share price low proved to be short-lived, with the shares rebounding strongly since then hitting new record highs in November. Revenues came in at $12.2bn in Q1, coming in short of expectations of $12.5bn, while its sales in China slowed as well as the economy there slowed. Since Q1 its factories in Vietnam have reopened, while the Chinese economy has picked up some speed with Singles Day at the beginning of November. Nike is also looking to get into the metaverse recently filing applications to protect its own trademarks. Profits are expected to come in at $0.62c a share.
Author
Michael Hewson MSTA CFTe
Independent Analyst
Award winning technical analyst, trader and market commentator. In my many years in the business I’ve been passionate about delivering education to retail traders, as well as other financial professionals. Visit my Substack here.
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