Written by Millan Chauhan.
We saw some promising news on the inflation front as the Eurozone’s consumer prices rose by 9.2% year-on-year in December 2022 which was down from 10.1% in November. The reading was well below preliminary estimates of 9.7% and was the lowest point for four months. This was attributed mainly to a short-term decline in energy prices which still remain elevated. However, the core inflation print (which excludes energy, food, alcohol, and tobacco prices) increased slightly to 5.2% in December from 5.0% in November on a year-on-year basis which remains above the European Central Bank’s target of 2%. This could be a sign that inflation has started to peak in the region, European markets reacted well to signs of inflation slowing with the MSCI Europe ex-UK Index closing +4.1% last week.
In the US, the Institute for Supply Management (ISM) Services PMI print came in at 49.6 for December which was lower than initial forecasts of 55.0 and which compared to 56.5 for November. This was the first contraction in the services sector data since the height of the COVID-19 pandemic in May 2020. The report combines monthly question responses from over 370 purchasing and supply executives in the US. A reading below 50 generally indicates that the economy is contracting.
Finally, we saw further evidence of weakness in the UK Housing market as house prices fell -1.5% on a month-on-month basis in December which brought the annual house price increase to 2.0% on a year-on-year basis. Households are currently grappling with significantly higher mortgage rates following a series of interest rate hikes by the Bank of England. Households are having to contend with a higher variable rate or lock in a higher fixed rate as they re-finance their mortgage, both scenarios result in higher monthly payments, which many have not been accustomed to.
