This week

Tracing its roots back to Frank Hornby’s Liverpool workshop back in 1920, clockwork model locomotives have been bringing joy to train enthusiasts, both young and old, for over a century now. Hornby train sets are still chugging along to this day, acting as something of a bellwether for economists when measuring the consumer’s discretionary spending, especially over Christmas.

Falling short of expectations, Hornby shares fell 20% this week as it blamed "the challenging consumer economic climate" for a slump in sales. Although a bright spot for the company was the enduring popularity of such wholesome pastimes, with a rise of 44% in direct-to-consumer sales from the previous year, the company’s results do chime with what a lot of retailers are reporting.

In fact, it’s been difficult to keep track of what has been a busy week for High Street trading updates. Thursday saw both M&S and Tesco issue strong numbers for Christmas with higher prices boosting sales. Tesco said like-for-like sales at its UK stores rose by 5.3% while M&S's grew by 7.2%, as both retailers highlighted the growth in demand for both cheaper "value" ranges as well as pricier "prestige" items. The numbers can be a misleading however, with the British Retail Consortium, also releasing their sales monitor data this week, beating expectations, but commenting the extra money spent by consumers was largely down to increased prices rather than volume.

Acting as the conductor for market movements earlier on in the week was US Federal Reserve Chair, Jay Powell, who refrained from commenting on future rate policy during his first media appearance of the year. Taking the subject’s omittance as a sign the Fed believe they are on track in their fight against inflation, US benchmarks rose over 1% during the aftermath.

Further evidence of this came in the form of US Consumer Price Index Numbers (CPI) released on Thursday. The data showed that prices unexpectedly hit the buffers for the first time on a monthly basis in more than two and a half years, dragged down by declining prices for petrol and second-hand vehicles. However, whilst the prices of goods are falling, services prices remain solid, underpinned by sticky rental costs. Even stripping out these costs shows that inflation in the sector is very much still apparent, a reflection of a persistently hot labour market and strong wage growth.

The week also saw good news in China, as the country was on track to reopen its borders in a final farewell to its zero-Covid policy. Having ended its requirement for incoming visitors to quarantine, China saw travellers enter the country via air, land and sea during the beginning of the week, as Beijing opened borders that have been all but shut since the start of the pandemic.

With the rampant inflation that had characterised 2022 beginning to derail in the US coupled with news of the reopening of the world’s largest importer of natural materials, it was all aboard the mining and oil exposed FTSE 100, hitting a 4 year high on Friday. Whilst fashionable tech heavy US benchmarks may have dominated investor attention during 2020 and 2021, they have underperformed the much-maligned UK benchmark over the last 12 months or so. It just goes to show that much like for Hornby model train sets, it is not the end of the line just yet for more traditional sectors.

Next week

The coming week starts on the scientifically approved most depressing day of the year, “Blue Monday”, just far enough after all the Christmas festivities to become a distant memory but still far enough away from the warmer weather and Easter bank holidays to get excited.

The first few weeks of 2023 have been anything but depressing for investors however, as faltering inflation and China opening its borders have conspired to drive almost all asset prices higher. Many will be hoping such a jolly start to the new year can continue, even on what should be a relatively quiet start to the week, as the US shuts its markets on Monday, in observance of Martin Luther King Jr Day.

One of the main reasons to be cheerful recently has been the Chinese government’s abandonment of its “Zero-Covid Policy”, now favouring opening its borders and scrapping its compulsory quarantine periods. Although the relaxation of these policies may come too late to affect the data, Tuesday sees the release of its quarterly on year GDP statistics, measuring the performance of the Chinese economy throughout the last 3 months of 2022, compared to a year earlier. GDP data acts as the broadest measure of economic activity and the primary gauge of the economy's health and so is a vital piece of the economist’s toolbox.

Tuesday will be an important day on domestic shores, as the Office for National Statistics releases a host of employment data, including both average hourly earnings numbers as well as the amount of people claiming unemployment related benefits during the previous month. With the Bank of England’s Chief Economist warning that the bank will have to continue to raise rates if wage inflation fails to subside, the numbers could have a large impact on currency markets, as traders speculate over the pace of future rate policy.

The middle of the week brings us not only inflation readings here in the UK but also retail sales data in the US. Switching from the High Street here to Main Street in the US, we should get an idea of how American retailers have fared during their “holiday season”. American consumers have been facing a similar cost of living crisis to our own, so the results will make for an interesting comparison.

The US should retain investor attention for the remainder of the week as their Department of Labor releases its unemployment claims numbers alongside the Federal Reserve Bank of Philadelphia’s Manufacturing index. The former piece of data is particularly interesting as it surveys about 250 manufacturers in the Philadelphia area, one of the heartlands of American industry, asking respondents to rate the relative level of the general business conditions they face.

 

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used, you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 13 January 2023.