Eurozone inflation falls to 2.4%
Newsflash: Inflation across the eurozone has fallen sharply this month, as falling energy prices ease the cost of living crisis.
The eurozone annual inflation rate is estimated to be 2.4% in November, down from 2.9% in October.
That’s a bigger drop than expected, as economists had forecast the inflation rate would drop to 2.7%.
Statistics body Eurostat reports that food, alcohol & tobacco is expected to have the highest annual rate in November, at 6.9% (compared with 7.4% in October).
Service inflation is estimated to have eased to 4.0%, down from 4.6% in October.
Industrial goods price inflation has eased to 2.9%, from 3.5%, Eurostat estimates.
Energy prices continue to tumble on a year-on-year basis, down -11.5% compared with November 2022, compared with -11.2% in October.
In contrast, the UK’s inflation rate fell to 4.6% in October (we don’t have November’s figures yet), while US inflation cooled to 3.2% in October (ditto).
Key events
Reuters: Opec+ has preliminary agreement for extra output cut
Reuters is reporting that the Opec+ group has reached a preliminary agreement for an additional oil output cut of more than 1 million barrels per day.
That’s being attributed to an Opec+ source, ahead of the formal Opec+ meetings due to take place later today (see intro for more details).
Here’s Marc de Muizon, senior economist at Deutsche Bank Research, on today’s eurozone inflation report:
“For the third month in a row, Euro Area inflation surprised markets and forecasters strongly on the downside today.
The November inflation flash prints confirmed price pressures are coming down quickly across all components of the inflation basket.
This print confirms that Euro Area domestic inflation is slowing much faster than anticipated by ECB forecasts a few months ago.”
Core inflation also falls in eurozone
Core inflation across the eurozone has also fallen this month.
If you strip out energy, food, alcohol and tobacco, annual core inflation dropped to 3.6% this month, down from 4.2% in October.
Core inflation is seen as a good guide to underlying inflationary pressures.
Diego Iscaro, head of European economics at S&P Global Market Intelligence, says inflation is likely to be below ECB forecasts in 2024:
“The larger than expected fall in eurozone inflation is good news and confirm the disinflationary trend already evident in recent months. The combination of falling inflation and still robust employment growth will help to support the economy and offset some of the drag coming from tighter monetary policy.
While we expect headline inflation to rise in December, the latest figures suggest that inflation in 2024 is likely to be below the ECB’s latest projections. It remains to be seen whether this will be enough to lead the central bank to cut interest rates already at the start of the second quarter of next year as financial markets currently expect. We expect that ECB will want to see a clear deceleration in wage growth before pulling the trigger”, said
Economics lecturer Daniel McLaughlin says inflation is likely to be rather lower than the ECB expected in the final quarter of this year.
The @ecb expected euro inflation to average 3.3% in Q4 but that now looks far too high, given 2.9% in Oct and Nov flash of 2.4%. Latter reflected 0.5% fall in prices on the month despite jump in food , with big fall (0.9%) in services. Core rate down to 3.6% (from 4.2%).
— Daniel McLaughlin (@drdanmclaughlin) November 30, 2023
ING: Falling inflation means eurozone rate cuts before the summer
Bert Colijn, senior eurozone economist at ING, predicts falling inflation will prompt the European Central Bank to start to cut interest rates before next summer.
Colijn says:
For the ECB, signs of an imminent victory on inflation are mounting. The central bank worries about factors like wage growth and possible spikes in the energy market that could put inflation on a higher path again.
But current monetary policy is sufficiently restrictive as bank lending data out earlier this week showed that the effects of higher rates are impacting lending significantly.
Also, there is still a lot more of the impact of tightening to come as interest payments are still increasing. The market is therefore right to start looking at rate cuts for 2024. We think the first one could well happen before the summer.
The sharp drop in eurozone inflation this month is a challenge to the European Central Bank’s argument that inflationary pressures are stubborn.
On Monday, ECB president Christine Lagarde told EU lawmakers that “This is not the time to start declaring victory.”
The ECB left interest rates on hold last month, after 10 increases in a row.
Mathieu Savary, chief European strategist at BCA Research, says the ECB is unlikely to start cutting interest rates soon:
“The Eurozone’s core CPI is falling even faster than market participants expected.
Traders will be tempted to bring their expectations of the first rate cut forward, but this would be a mistake. The ECB is too concerned by the tightness of the labor market, which implies later rather than sooner rate cuts.”
Eurozone inflation falls to 2.4%
Newsflash: Inflation across the eurozone has fallen sharply this month, as falling energy prices ease the cost of living crisis.
The eurozone annual inflation rate is estimated to be 2.4% in November, down from 2.9% in October.
That’s a bigger drop than expected, as economists had forecast the inflation rate would drop to 2.7%.
Statistics body Eurostat reports that food, alcohol & tobacco is expected to have the highest annual rate in November, at 6.9% (compared with 7.4% in October).
Service inflation is estimated to have eased to 4.0%, down from 4.6% in October.
Industrial goods price inflation has eased to 2.9%, from 3.5%, Eurostat estimates.
Energy prices continue to tumble on a year-on-year basis, down -11.5% compared with November 2022, compared with -11.2% in October.
In contrast, the UK’s inflation rate fell to 4.6% in October (we don’t have November’s figures yet), while US inflation cooled to 3.2% in October (ditto).
UK property transactions drop
UK property transactions fell again last month, data from HMRC shows, as the housing market continued to cool.
There were 82,910 UK residential transactions in October (on a seasonally-adjusted basis), which is 3% lower than in September…. and 21% lower than October 2022.
The drop in transactions follows the fall in mortgage approvals, which hit a five-month this summer.
Anna Clare Harper, CEO of sustainable investment adviser GreenResi, says the fall in housing transaction is not surprising, adding:
“Firstly, we are still coming down from a bubble caused by Covid and Stamp Duty reductions, which created double-digit house price growth for much of the past three years.
Secondly, the higher base rate is designed to cool demand and therefore pricing in the economy, and it is working to plan.
Sentiment is subdued across the property market. However, for investors it’s a time of opportunity since rental demand has never been stronger, and it is a good time to negotiate on purchase price.”
Here’s Noble Francis, economics director at the Construction Products Association:
There were 82,910 residential property transactions in the UK in October 2023, 2.5% lower than in September & 20.5% lower than a year ago (which was just before the full effects of last year’s Mini Budget), according to HMRC, although… (1/n) #ukhousing #housing pic.twitter.com/RifcVGFIJv
— Noble Francis (@NobleFrancis) November 30, 2023
… UK residential property transcations in October 2023 were also 11.9% lower than in January 2020, pre-pandemic ‘race for space’ & before the stamp duty holidays but with the unconstrained version of Help to Buy in place. (2/n) #ukhousing #housing pic.twitter.com/c1vc7GVFeU
— Noble Francis (@NobleFrancis) November 30, 2023
Amena Bakr, chief Opec correspondent and deputy bureau chief at Energy Intel, has details of the timings for today’s Opec meeting:
Update on the opec meeting timings: The OPEC meeting starts at 11am Vienna time. The JMMC at 2:30pm Vienna time. And finally the OPEC-Plus meeting is planned for 3:30pm Vienna time. #OOTT #Opec
— Amena Bakr (@Amena__Bakr) November 30, 2023
The JMMC is the Joint Ministerial Monitoring Committee, which will make recommendations to Opec+.
It’s possible that Opec+ members fail to agree any output cuts today, and simply maintain output at current levels.
Bloomberg explains:
Group leader Saudi Arabia is pressing fellow alliance members to join it in restraining supplies in order to stave off a renewed oil surplus next year. A deeper collective cutback of 1 million barrels a day or more will be discussed when ministers from the Organization of Petroleum Exporting Countries and its allies hold their video conference, delegates said.
Yet obstacles to an accord remain — most notably, a dispute over whether African members Angola and Nigeria should accept reduced output targets to reflect their diminished production capabilities. The stalemate has meant that Thursday’s gathering is being held four days later than originally planned.
Failure to resolve the issue could result in a so-called rollover at the meeting, in which members maintain output at current levels, delegates said.
Sarah Butler
In the City of London, shares in footwear maker Dr Martens have plunged by 25% after it issued its fourth profit warning this year.
A tough consumer environment in the US continues to affect sales of Dr Martens sturdy boots.
The Northamptonshire-based footwear brand said sales fell 5% to £396m in the six months to 30 September and pre-tax profits dived 55% to £26m. While this was better than City analysts had expected, the company warned that the outlook for the following six months had worsened because of a slower than hoped for recovery in its US business.
At 85p, shares are over 75% lower than the 370p float price in January 2021.
Sales for the full year are now expected to fall by about 8% and underlying profits to drop back below the £223.7m minimum expected by the City – continuing the slide seen since the company listed on the London Stock Exchange in January 2021.
More here.
The “trend towards disinflation” is well underway in France, says Charlotte de Montpellier, ING’s senior economist for France and Switzerland, after inflation dropped to 3.4% this month from 4% in October.
There are worrying economic signs from China today, where factory activity has contracted for the second month running.
The official purchasing managers’ index fell to 49.4 in November from 49.5 in October, National Bureau of Statistics data showed today, further below the 50-point mark showing stagnation.
Economists had expected a small rise to 49.7 (showing a slower contraction).
Dan Wang, chief economist at Hang Seng Bank China, blames a slowdown in global demand.
“The domestic market cannot make up for losses in Europe and the United States. The data shows that factories are producing less and hiring fewer people.”
Growth in China’s non-manufacturing section of the economy slowed, with its PMI weakening to 50.2 in November from 50.6 in October.
Kyle Rodda, senior financial market analyst at capital.com, says:
Further evidence for China’s half-baked economic recovery came from today’s PMI surveys, which revealed an unexpected drop in manufacturing and non-manufacturing activity.
In better news from France, inflation has fallen… and by more than expected.
Over the last year, the Consumer Price Index (CPI) is estimated to have risen by 3.4% in November 2023, down from 4.0% in October, French stats body INSEE says.
During November alone, prices are estimated to have dropped by 0.2%.
On an EU-harmonised basis, French annual inflation dropped to 3.8% this month, down from 4.5% in October.
French economy shrank 0.1% in Q3, worse than thought
Newsflash: The French economy shrank unexpectedly in the last quarter, as the eurozone economy teeters on the brink of recession.
Updated GDP data just released shows that France’s economy contracted by 0.1% in July-September.
That’s worse than the first estimate of 0.1% growth for Q3, and follows growth of 0.6% in Q2.
The new data shows that French investment and consumer spending were weaker than initially expected.
INSEE, the statistics body, says:
The purchasing power of households gross disposable income (GDI) per consumption unit fell slightly (-0.2%) after remaining stable in the previous quarter. The household saving rate fell this quarter to 17.4% of GDI, after 17.9% in the previous quarter.
Trade also pulled GDP down, with exports falling by 1% while imports were stable.
French economy slips into contraction in Q3 by -0.1%, headline CPI slows to 3.4% in November
— Michael Hewson 🇬🇧 (@mhewson_CMC) November 30, 2023
The wider eurozone economy also shrank by 0.1% in the last quarter, according to statistics body Eurostat.
Oil up ahead of Opec+ meeting
Brent crude has hit a two-week high this morning, as traders brace for today’s Opec+ meeting.
Updated: It traded as high as $83.85 per barrel, +0.9%, the highest since 14 November, following yesterday’s report that Opec+ was considering cutting production by as much as 1 million barrels a day.
Introduction: Opec+ meeting in the spotlight today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
To cut or not to cut? That is the question facing Opec+ today as the oil cartel meets (virtually) to set production levels.
Opec and its allies are expected to try to agree to cut the amount of crude oil they pump, in another attempt to prop up prices as demand weakens.
But there’s an unusual lack of consensus within the group, so analysts aren’t sure what to expect today.
This afternoon’s meeting has been delayed from last Sunday, due to a disagreement over output quotas by the African oil-producing countries.
And yesterday, the Wall Street Journal reported that Opec and its Russia-led allies are considering new oil production cuts of as much as 1 million barrels a day. That would be around one percent of global demand.
But some members may not support a cut, as Stephen Innes, managing partner at SPI Asset Management, explains:
There is increasing speculation that deeper OPEC+ cuts may encounter strong resistance, particularly from the United Arab Emirates and African producers such as Angola and Nigeria.
These countries resist accepting lower production baselines, even under weaker market fundamentals. The dynamics within the OPEC+ alliance continue to play a crucial role in determining production policies and addressing global oil supply challenges.
Opec+ has already been cutting output over the last year, and has removed around 5 million barrels per day, despite pressure from the White House to pump more to bring down motor fuel prices.
And Deutsche Bank has pointed out that if Opec+ don’t cut output, then the global oil market would move into an oversupplied position in early 2024, given oil demand growth and rising non-OPEC production.
Also coming up today
We find out today if inflation in the eurozone kept falling this month. The CPI index is expected to drop to 2.7%, from 2.9% in October, closer to the European Central Bank’s target of 2%.
There’s also new eurozone jobs report, while Canada will become the last G7 country to report GDP figures for the third-quarter of 2023 today.
The agenda
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8.55am GMT: German unemployment
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10am GMT: Eurozone flash inflation report for November
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10am GMT: Eurozone unemployment report for October
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1.30pm GMT: US weekly jobless claims
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1.30pm GMT: PCE measure of US producer price inflation
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1.30pm GMT: Canada’s Q3 GDP report to be released
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3pm GMT: Opec virtual meeting expected to start