This morning, UK headline CPI for November was released, coming in below expectations at 3.2%, down from 3.6% in October. The slowdown was driven by weaker food and core goods inflation, which helped ease overall price pressures. Unsurprisingly, services remain the main contributor to inflation, rising 4.4% year-on-year. The Bank of England holds its final monetary policy meeting of the year tomorrow. Markets had already been pricing in a 25 basis point rate cut to 3.75%, and today’s data further strengthens that expectation. This is compounded by the latest labour market figures, which show the UK unemployment rate climbing to 5.1% in the three months to October – the highest level since early 2021.
On Tuesday, consumption in China was reported as having fallen short of expectations in November, with retail sales rising to 1.3% year-on-year, slowed by an 8.1% drop in auto sales and distortions from the early Singles-Day shopping festival. Despite deflationary pressures and weakening wages, the economy remains on track to meet its 5% growth target, aided by strong exports to non-U.S. markets and a plethora of government stimulus pledged and already in circulation (including plans for ultra-long-term government bonds to boost demand and investment).
In the U.S., nonfarm payrolls rose by 64,000 in November, beating market expectations but offering little in the way of genuine surprise about the condition of the labour market. Over the same period, the unemployment rate increased to 4.6%, while labour force participation edged higher to 62.5% from 62.4%. Taken together, the data reinforce the view that the labour market is continuing to cool at a measured pace – an environment increasingly characterised as “low hiring, low firing”. This backdrop leaves the Federal Reserve with important considerations as it assesses the scope for further interest rate cuts in 2026. That said, Fed Chair Jerome Powell has cautioned against over-interpreting the latest release, noting the likelihood of data revisions due to the government shutdown and downplaying its immediate policy significance.
Over the weekend, President Zelenskyy indicated that Kyiv would be willing to forgo NATO membership in an effort to move closer to ending the war with Russia. This was followed on Tuesday by comments from President Trump suggesting that a peace deal between Russia and Ukraine could be imminent. The developments weighed heavily on defence stocks, which fell sharply on the news.
Still to come this week we have the ECB’s interest rate decision, U.S. inflation, Japan’s inflation rate and UK retail sales.
Nicola Tune, Portfolio Specialist
