This week

With the Office for National Statistics releasing its inflation figures this week, showing prices rising at levels not seen since 1992, data announcements throughout the past week, particularly detailing housing and petrol prices, drew some interesting parallels from those salad days in the early 90s.

Back in 1992, the average house price sat at just £68,634, a sharp contrast to the figures being stated by online estate agent Rightmove, who reported their Housing Price Index numbers at the beginning of the week. The data showed the average price of a property coming to market jumped by 0.3% over the past month, or £852 in monetary terms, with the average cost of a property now coming in at £341,019, 7.6% higher than this time last year.

If the cost of housing highlights something of a meteoric rise over the past 3 decades, then the cost of petrol only goes to fuel the notion. News emerged on Wednesday that oil prices hit a 7 year high as a suspected drone attack by Yemeni Houthi rebels in the United Arab Emirates, blew up three fuel tankers. Geopolitical tensions coupled with increasing demand as the global economy recovers from the pandemic, pushed Brent crude up by over 1% on the day to hit $87.22 a barrel. For some context, a litre of petrol back in 1992 would cost an average of 40p, today it costs £1.46 at the pumps.

It is little wonder therefore that Wednesday saw domestic inflation come in at a reading of 5.4% for December, up from 5.1% the previous month and ahead of consensus forecasts of 5.2%. Financial markets are now pricing in more than a 90% chance that the Bank of England will raise its main interest rate to 0.5% when they next meet on 3 February. A key indicator of this view could be seen in the bond markets, where two-year gilt yields came within a whisker of their highest level since 2011.

Towards the end of the week, rates were heading in the opposite direction in China, as the People Bank of China took the decision to cut its mortgage rates. Data earlier in the week pointed to a darkening outlook for the country's troubled property sector with December’s economic numbers showing investment in the sector dropped 13.9% from a year earlier, falling at the fastest pace since early 2020. Weak consumption data also clouded the outlook for the world’s second largest economy, with retail sales in December also missing expectations, seeing a 1.7% increase from a year earlier, the slowest pace since August 2020.

Next week

After a pretty ugly start to the year, global markets will be hoping for a much prettier outlook as we transition into February, not only a change of month but also a change in astrological sign, ushering in the dawning of Aquarius. The sign is of course represented by Ganymede the water carrier, who, according to Greek mythology was one of the most beautiful beings to have ever lived.

Investor focus will be carried to the continent during the beginning of the week as a raft of PMI data is released for Europe’s largest economies. Detailing performance in both the manufacturing and services sectors, the data will be split out amongst component parts of the bloc, with Germany and France’s readings potentially having the largest impact on markets, alongside a collated version of the data for the Eurozone as a whole.

With the Eurozone being a mixture of differing economies, some relying on services, others on manufacturing, the data should take on added significance, especially as the bloc struggles to get to grips with the fast spreading Omicron variant. The data itself will serve as a leading indicator of economic health as businesses tend to react quickly to market conditions, with their purchasing managers holding perhaps the most current and relevant insight into the company's view of the economy.

The story goes that Ganymede was abducted by Zeus due to his profound beauty, to be his cup bearer and pour wine for the gods. Having been moved to Mount Olympus for the rest of his days, Ganymede was able to enjoy life in some of ancient Greece’s prime real estate. Although mythical, it would be interesting to see what that kind of location would fetch in today’s market. Instead we have Nationwide’s HPI data to analyse, detailing the change in the price of homes with mortgages backed by building society here in the UK.

Whetting our whistle for future rate rises, the major event of the week should come on Wednesday as the US Federal Reserve discusses the minutes from their last meeting with press. With inflation hitting levels not seen in 40 years stateside, many investors will be looking for guidance from the Fed as to when they will look to raise rates and the pace of such hikes.

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 in January 2022.