A string of economic data published yesterday revealed that the western economies are holding up far better than expected, renewing fears that central banks will act more robustly to stamp out inflation during the coming months.
S&P Global Purchasing Managers Indexes from the US, the UK and the Eurozone all came in above economists' expectations in February. There were signs that inflationary pressures are easing across all three, but the releases strengthen the case that central bankers have more leeway to keep squeezing economies in order to remove any chance that inflation returns.
Commentators have suggested that the Fed in-particular remains haunted by the 1980 decision of then Fed chair Paul Volcker, who famously blinked in the face of rising employment. Inflation then remained at 12% through the end of 1980 and only returned to 3% in 1983 following a brutal period of hikes that saw the federal funds rate hit almost 20%.
The UK consumer
While the US release largely represented a stabilization of private sector activity, UK and Eurozone activity rebounded. Both the manufacturing and service sectors achieved a return to growth in the UK, reversing six months of falling output. Survey respondents cited rising customer demand and improving business confidence due to lower economic uncertainty, fewer supply shortages and falling inflation.
It's not just businesses, either. Stronger than expected retail sales figures for January, published last week, suggest that consumer confidence is more than holding up. You can read Stephen Springham's in-depth take on those figures here. Not all of the data is clear cut and we're likely to get lots of mixed messages in the coming weeks. That rebound in household views on the trajectory of house prices proved short lived, for example (see chart).
Regardless, financial markets now point to a 95% chance of an increase in the Bank of England base rate in March, up from 90% early yesterday. In the meantime mortgage rates continue to tick down, albeit slowly. HSBC is set to be the latest to cut rates across its range this morning.
Golden Visas
Portugal will end its "Golden Visa" scheme as part of a package of measures aimed at tackling its housing shortage. The nation is one of about a dozen that offers residency in exchange for foreign investment.
Official figures suggest the government has issued almost 12,000 resident permits to investors since 2012. Those investors acquired more than €6 billion worth of real estate and transferred more than €700 million into Portuguese bank accounts.
The UK dropped its Tier 1 Investor Visa scheme a couple of years ago, but similar programs are still up and running in the US, Spain, Singapore and the UAE, to name just a few. The schemes create significant demand in prime property markets. Italy's version has proven particularly popular and is likely to be one of the more active prime property markets this year, as we'll be exploring in the Wealth Report 2023, out next month.
US home sales stabilize
More signs that the US housing market is reaching the bottom - existing home sales slipped to 4 million in January, down 0.7% from the previous month, according to the National Association of Realtors (NAR).
Sales have declined 37% from the 6.34 million homes sold in January 2022 and are unlikely to fall much further, according to NAR Chief Economist Lawrence Yun:
“Home sales are bottoming out... Inventory remains low, but buyers are beginning to have better negotiating power.”
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