UK economy encouraging start to 2023

Macro & Overnight

Yesterday’s ADP data suggest a resilient US labour market. All eyes will be on today’s non-farm numbers. Consensus expects a c.200K increase in December payrolls following a 263K gain in November.

Individual cases of job cuts continue to make headlines, with Amazon, Genesis, Stitch Fix, Salesforce and Slack all announcing cuts. However, tech employment is a small portion of the US job market, so the noise is less impactful than the headlines suggest.

FOMC member and recent uber hawk Bullard talked with a slightly dovish tone by saying rates are getting closer to a “sufficiently restrictive zone”. This comment translates as “we have nearly done enough damage.”

While we all might think COVID is behind us, a new variant classed as a highly transmissible sub-variant first detected in October is now in 25 countries. There needs to be more data to understand how severe its impact will be. The Lockdown of 2023, anyone?

Meanwhile, China is trying to open up rapidly post its recent lockdowns. The NASDAQ Golden Dragon Index is up 15% in the first three trading days of the year. The critical question is whether this is inflationary (by adding to cost pressures) or deflationary (by adding to the supply of manufactured goods). Firmer oil prices might suggest that China’s re-opening will have at least some inflationary impact.

We got poor results and reduced guidance from Samsung in South Korea and Costco results that were ahead of analyst estimates. Intuitively, we spend more with discount retailers and less on high-end consumer discretionary items such as smartphones and smart TVs as household budgets tighten.

According to mortgage provider Halifax, average house prices dropped 1.5% between November and December, marking a slowdown from the 2.4% drop recorded between October and November. While it is apparent that housing market activity has fallen quickly, how quickly house prices fall is still being determined.

Overall, the UK economy has had an encouraging early start to 2023 with lower gas prices and signs of consumer resilience from leading retailers Next and Greggs.

UK Company News

Shipping services provider Clarkson updated on FY results that are anticipated to be ahead of current market expectations and at least £98m of PBT. This short but upbeat declaration represents a high teens upgrade to consensus forecasts.  

Essentra issued its first trading update since its transition to a pure component manufacturer. It expects to deliver a “robust” performance in 2022, with like-for-like revenue expected to grow by 6.5% against the previous year. It expects profit to be in line with expectations. Essentra noted that its business saw slower economic growth in 2022 due to toughening market headwinds. Coupled with a strong comparative for its final quarter, it said sales have consequently fallen by 3.0% compared with the year prior. Essentra is focused on maintaining profit margins.

Shell issued a trading update and noted the impact of recently announced additional taxes in the EU and the deferred tax impact from the increased UK energy profits levy on its fourth-quarter earnings. It said it expects the impact to total around $2bn and will have a “limited” cash impact in the period, given the expected timing of payment. Shell points to lower oil and gas volumes Q/Q but stronger margins. This update paves the way for more share buybacks and calls for more windfall profits taxes. 

Prognosticator