This week
It was US politician and polymath, Benjamin Franklin, who once commented that there are only two certainties in life: death and taxes, and whilst the impending demise of January may be a cause of cheer for many, it seems more have tried to escape that second inevitability. With the end of the month arriving on Tuesday next week, the last full week before the self-assessment deadline, HMRC report that 3.4 million are yet to file their returns.
Interestingly the tax office does also disclose the times in which individuals file their taxes, reporting that 129 individuals actually submitted their forms on January 1 between 00:00 and 00:59. The spirit of leaving it quite literally past the 11th hour, was not lost on the US government this week either, with their Treasury Department now taking measures to prevent a potentially devastating default, after hitting the nation’s debt limits. Although reaching the debt ceiling means the government is not allowed to borrow any more money, unless Congress agrees to suspend or change the cap, it tends to have very little impact on financial markets. Usually, some sort of agreement is reached as American political parties try to bridge the GAAP with each other.
One European asset that has very much appreciated recently this month has been economic sentiment in Germany, the Eurozone’s largest economy. Rising sharply on Monday by 40.2 points from the previous month to reach +16.9 in January 2023, returning to positive territory for the first time since February and remaining comfortably above market expectations of -15.0. This latest reading suggests that the economic outlook in Germany has improved markedly, especially after a warmer than anticipated winter, averting a potential fuel crisis as consumers refrained from turning the heating on to the same extent in order to heat their homes.
Although the UK enjoyed some robust data readings throughout the past week, news emerged that parts of the manufacturing sector are becoming a complete write-off, as the number of new cars made in the UK sank to its lowest level for 66 years. A struggle to obtain parts due to Covid induced bottlenecks and a semiconductor shortage have hit the industry worldwide, but the UK has also been hit by the added concern of factory closures, resulting in only 775,014 cars being made last year, compared to a pre-pandemic level of 1.3 million. It’s an accrual world they say, especially with the US and Europe taking up the slack with their order books, although the UK had still made more electric vehicles than ever before, it’s been a painful year for the sector would be a fair deduction.
With the US earnings season now in full swing, we saw results from tech giants such as Microsoft and IBM this week, however, one company whose numbers may have been overlooked is denim manufacturer Levi Strauss. Acting as a useful gauge for consumer spending and confidence, the San Francisco based company announced annual sales well above Wall Street estimates. Topping fourth-quarter sales and profit expectations by some way, the company has really been pocketing a boost from its direct-to-consumer business. With strong demand for non-denim clothing and women's apparel helping to offset slumping sales in Europe, it all acts something of a turnup for the books.
Next week
As January transitions into February, perhaps the Anglo-Saxons were on to something when they used to refer to the month as Solmonath, literally translating to “mud month”.
With the month providing a backdrop where very little gardening can be done (apart from pruning your Wisteria and Hydrangeas of course), the coming week starts inside the home, with Nationwide’s Housing Price Index data being released on Monday morning. Detailing the change in the asking price of homes mortgaged by the provider, the data acts as the UK's earliest report on housing inflation. The housing industry's health should not be overlooked when gauging the wider industry activity, it can spur. The property market has a wide-reaching impact on banks, mortgage providers, estate agents and even greatly impacts DIY and furniture companies who should benefit from increased activity in the sector.
From housing prices to household confidence, Tuesday bring US Consumer Confidence, released by the American Conference Board. The survey is so well respected due to its breadth, asking 3,000 households to rate the relative level of current and future economic conditions including the ease of getting a new job, business conditions and their overall economic situation. Consumer confidence is incredibly important to economists as it acts as a leading indicator of consumer spending, which accounts for most of the overall economic activity.
The remainder of the week should be a tail of three central banks as the Bank of England, the US Federal Reserve and the European Central Bank hold press conferences throughout Wednesday and Thursday, and are widely expected to raise rates further, although perhaps at a slower pace here in the UK and the US. By how much is still up for debate but we should expect a volatile end to the week as a range of central bankers give their views on the economy and clues to future rate policy.
As ever, the first Friday of the month brings US Non-Farm Payroll data. A key piece of information when determining the US central bank’s thinking on inflation, the employment data itself will be accompanied by Average Hourly Earnings, allowing us to more accurately gauge future demand expectations as the more consumers earn, the more they tend to spend. It all combines to be a vital piece of data for the Fed and should take on added significance considering the extra impetus put on such data going forward from Jay Powell and co.
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 27 January 2023.