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Weekly Economic & Financial Commentary: Economic Disruption in China & U.K. CPI Fueling BoE Rate Hike Bets

Summary

United States: Snarled Supply Chains Stymie Production

  • Supply chain snags continue to bedevil the factory sector. Industrial production fell 1.3% in September. Tangled value chains are worsening building material shortages and hampering new home construction. During September, housing starts and building permits declined 1.6% and 7.7%, respectively. Demand for homes remains strong, as evidenced by a 7.0% rise in existing home sales.
  • Next week: Durable Goods (Wed), Q3 Real GDP (Thurs), Personal Income & Spending (Fri)

International: Economic Disruption in China & U.K. CPI Fueling BoE Rate Hike Bets

  • Restrictions from a renewed COVID outbreak in China, regulatory changes weighing on local financial markets and a potential collapse of Evergrande have all contributed to a slowdown in Chinese economic activity. In the U.K., inflation has been on an upward trajectory over the past few months. Reopening the economy combined with plush household balances have pushed price growth well above the Bank of England’s inflation target.
  • Next week: Bank of Canada (Wed), European Central Bank (Thurs), Eurozone GDP (Fri)

Credit Market Insights: Buy Now, Pay Later Plans Amplify Right Before the Holiday Season

  • “Buy Now, Pay Later” (BNPL) is an alternative to traditional credit card purchases that cater to consumers by allowing larger purchases to be split up into smaller, evenly dispersed payments. This flexibility has led to concerns over allowing consumers to purchase items that they may not be able to truly afford. Household balance sheets remain strong, but spending patterns may change as these new web-based payment methods are being picked up left and right by large retailers just in time for the holidays.

Topic of the Week: Jingle Bell Block: Holiday Sales during a Supply Chain Crisis

  • In a year likely to be characterized by inventory shortages, with not enough salespeople in stores or delivery drivers for e-commerce purchases, our forecast says holiday sales will increase 11% this year. But make no mistake, we are not expecting this to be a happy holiday shopping season for retailers. Our call says more about how far holiday sales categories have already come this year than it does about where sales are headed in the remaining three months of the year.

Full report here.

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