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The week ahead 17 April 2023 - US money looks overseas

17 April 2023

What to watch out for in the UK economy and property market this week.

Last week saw mixed news on the state of the global economy. UK GDP flatlined on a month-on-month basis in February due to strikes, although the January data was revised higher. Also, February saw a strong increase of 1.5% in Euro Area industrial production, up from 1.0% in January. This was better than expected and continues a run of Eurozone figures that have beaten forecasts. Meanwhile, the Financial Times reported US investors are planning to increase exposure to foreign equities, as they now expect performance to be stronger in overseas markets. While the article was about equities, it is likely there will be a similar rise in US interest in other foreign asset classes going forwards, including real estate.

This week will see the release of the March UK MSCI (IPD) monthly property index. The All Property capital growth index has been falling since its June 2022 peak, shedding 21% of its value so far. The rate of decline has decelerated markedly in recent months, suggesting the majority of the correction is priced in but a floor has not yet been found. Higher interest rates and ongoing concerns over structural changes in the office and retail markets have kept the property market a nervous place in early 2023. So, we feel the index has further to fall and are expecting another negative figure. In the coming months we will find out how much the volatility in the banking market has impacted debt availability. There is bound to be some tightening of lending, which could lead to some forced sales, although we are not expecting a surge of disposals.

Returning to the structural concerns facing the office market, last week saw one of the largest US banks order its directors to return to the office five days a week. Unemployment rates remain low across the advanced economies, so one can debate how much strength employers have in ordering staff back to the office. However, note that after three years of widespread working from home many employers still want to increase office attendance. This is a tug-of-war where homeworking is not getting things all its own way.

Things to watch for this week

Tuesday 18th April

MSCI UK Capital Growth, March

Previous: -0.7%
Forecast: -0.7%

While the rate of decline has slowed sharply in 2023, capital values are nevertheless still declining and we expect this to continue in March at a similar pace to February.

Wednesday 19th April

UK CPI Inflation, March

Previous: 10.4%
Forecast: 9.9%

We are expecting inflation to fall in March, both on the headline and core measures. UK inflation is looking high compared to other G7 nations, which could increase pressure on the Bank of England to hike again in May.

Friday 21st April

Euro Area ‘Flash’ Composite PMI, April

Previous: 53.7
Forecast: 53.9

The Composite PMI index has risen for five consecutive months, and been above the 50 mark that represents growth for three months in a row. We expect a similar but slightly higher figure for April reflecting the easing of inflation, but nervousness in the financial sector.

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