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The week ahead 4 December 2023 - Inflation continues to retreat

The Week Ahead 04 December 2023

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

Last week saw inflation fall and by more than expected in several European countries. In Germany, inflation declined from 3.0% in October to 2.3% in November, which was below the consensus forecast of 2.7%. Similarly, inflation fell in France (from 4.5% to 3.8%), Spain (3.5% to 3.2%) and the Euro Area (2.9% to 2.4%). Moreover, core inflation – which excludes fuel and food – also fell in the Eurozone, so this cannot be dismissed as energy base effect. The news further strengthened expectations that the ECB might go for a rate cut earlier than the US Federal Reserve or the Bank of England, possibly in Q2 2024. This could offer some welcome support for commercial property yields in the Euro Area, which have been rising for some time now. 
Given the above, it is worth noting that global equities have just enjoyed their best month since November 2020. The MSCI World Equities Index increased by 9% in November 2023, buoyed by growing confidence that 2024 could see cuts in interest rates. While equities are a very different investment to real estate, the news nevertheless shows there is growing risk appetite among investors, which may soon filter through to property markets. Meanwhile in the UK, the Nationwide House Price Index grew by 0.2% m-on-m, beating a consensus forecast of a -0.4% fall, as lenders cut mortgage rates – demonstrating that even the future possibility of a base rate cut can increase lending today. That said, both the commercial and residential property markets face significant headwinds in the coming months. However, confidence is building that a turning point for property markets is drawing closer. 
This week sees data from Europe, namely Eurozone retail sales and industrial production for Germany, France, Italy and Spain; which will provide clues as to whether growth is holding up in Q4. Also, the US will publish non-farm payrolls data, which the Federal Reserve will be watching closely to gauge the strength of the jobs market. A decline in recruitment in America would further increase the likelihood that interest rates have peaked.  

Things to watch for this week

Wednesday, December 6th

Euro Area Retail Sales, m-o-m, October

Previous: -0.3%
Forecast: 0.2%

With inflation easing and interest rates levelling out, we believe consumers may have been a slightly better position to spend more in the shops in October.

Thursday, December 7th

Germany Industrial Production, m-o-m, October

Previous: -1.4%
Forecast: 0.0%

Germany’s industrial sector saw declining production between June and September, reflecting a weak domestic economy and poor export demand. However, we believe output may have levelled out in October, as more competitive pricing draws in buyers looking to restock inventories.

Friday, December 8th

US Non-Farm Payrolls, Novemeber

Previous: 150k
Forecast: 140k

Non-farm payroll growth almost halved in October, and we are forecasting another decline in November as firms try to minimise recruitment in order to control costs.

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