Having come off the back of what we were told was a record 'Singles Day' in November, one would have been forgiven for thinking that Chinese retail sales would have undergone a decent rebound last month. It would appear that nothing could have been further from the truth, as retail sales fell to their lowest levels in over 15 years, dropping from 8.6% to 8.1%.

One of the biggest drivers of the slowdown was a sharp decline in auto sales, something that has been happening all over the world, so it’s not a uniquely Chinese problem, but nonetheless it points to a global economy slowing down sharply.

We got an indication of that weakness at the weekend with respect to China’s exports numbers which slowed sharply in November, while industrial production also disappointed coming in at 5.4%.

The disappointment around these numbers hit Asia markets overnight and has translated into a similarly disappointing European open, as the optimism over trade talks that has been the hallmark of the last couple of days, gives way to concern that any progress is likely to be too late to prevent further economic weakness in 2019.

European auto sales also declined in November for the third month in a row, this time by 8%, and only three months after posting a 10 year high of a rise of 31.2%, sending auto makers down on the open this morning with Peugeot, Renault, Volkswagen, and Daimler all sharply lower. 

If businesses were hoping for a respite from the uncertainty brought about by this week’s untimely and unsuccessful Conservative party no confidence vote in Theresa May, last night’s events in Brussels won’t have encouraged, as EU leaders pushed back on Theresa May’s attempts to wring concessions out of them over the Irish backstop, weakening the pound in the process.

Judging from the mood music it didn’t go well with EU leaders sending the Prime Minister away with a proverbial flea in her ear. She was told to come up with something more than the same proposals that had already been rejected in previous discussions. On a number of occasions it was reported that German Chancellor Angela Merkel asked her what it was that she wanted?

Having assured her MPs only a few hours before that she would be able to extract further clarifications on the Irish backstop any prospect that Parliament will vote through her withdrawal agreement look further away than ever, with any prospect that MP’s will vote for this deal highly improbable whether they are voted on now, next week, or next year. The EU also announced they would be ramping up their preparations for a no deal Brexit, while in Dublin it is reported that spare warehouse space has been used up already for the purposes of stockpiling.

Today’s flash PMI numbers from France and Germany for December have put into sharp contrast the ECB’s decision to stop its asset purchase program at the end of this month. If ECB President Mario Draghi is correct as he said yesterday, that QE has been the only driver of recovery in certain parts of the euro area, surely you have to question the wisdom behind the decision to not only reduce but to end it.

In France both services and manufacturing activity has plunged below 50 illustrating starkly how much disruption recent unrest in the country has had on economic activity, with the composite number sliding to its lowest level since February 2016 to 49.3, and into contraction territory.

In Germany the numbers were a little better but still disappointing with manufacturing coming in at 51.5, while services came in at 52.5, both below expectations.

The UK construction and outsourcing sector has been in the spotlight for all the wrong reasons this year so it’s refreshing to hear some good news for a change after the UK’s biggest construction company Balfour Beatty posted a positive update for the first half of this year. Its order book for the year is expected to come in at £12bn, while margins remained solid at 2-3%. Profits are also expected to be higher than expected due to a £65m return on disposals.

In the US we have the latest retail sales numbers for November which will cover the Thanksgiving holiday and are expected to slip back from the bumper October number of 0.8%, coming in at 0.1%.

With such a weak lead from Asia and European markets, we can expect to see US markets to open significantly lower potentially wiping out all of this week’s gains.
 

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