An Anglophone Data Thursday

What do Canadian monthly GDP, Australian CPI and a UK GDP revision have in common? All hit the wires late this week, giving investors a fresh batch of data to digest ahead of the long weekend. What goodies lie in this metaphorical Easter basket? Let us take a look.

Canadian GDP Gets All Jumpy

Canada’s monthly GDP jumped 0.6% m/m in January, beating expectations and rebounding from December’s -0.1% drop and a weak Q4 in general.^[i] January was the fastest monthly growth in a year, too. Given that the US and UK show similar trends, we think it is fair to question whether there is some seasonal adjustment skew at work. COVID lockdowns messed pretty hard with normal seasonal patterns since 2020, which statisticians around the world have observed throwing off seasonal adjustment factors. Lately, that means seasonal adjustments pulling December data lower than usual, then pushing January higher. We aren’t pooh-poohing the nice result, but, grain of salt.

Taking the numbers at face value, though, there was a lot to be encouraged about. Output grew despite mining and oil drilling plunging -1.9% m/m, thanks to manufacturing’s 0.9% rise and services’ 0.7%.^[ii] Within services, every category save the potpourri called Other Services grew, showing activity was strong across the board. It will take some time to see if faster growth is a trend, but with Canada having such strong economic ties to the relatively fast-growing US there should be plenty of tailwinds at its back, contributing to global growth.

Aussie CPI Delivers a Positive Surprise

Australia’s newish monthly consumer price index (CPI) also beat expectations, with the headline inflation rate holding steady at 3.4% y/y in February—slower than the uptick to 3.5% economists expected.^[iii] Core CPI, which in Australia excludes fresh produce, auto fuel and holiday travel/accommodation, slowed from 4.1% y/y to 3.9%.^[iv] Given that last category had some upward skew from elevated prices when a certain American singer blew through town on her Eras tour, we guess you could say core CPI excluded food, fuel and Taylor Swift.

Anyway, most of the conversation pivoted to the Reserve Bank of Australia (RBA) and whether it will cut rates sooner or later, echoing the global discourse. We think this is so unpredictable as to be laughable, given the bank’s recent history of starting and stopping rate hikes, repeatedly going against most popular interpretations of its squishy forward guidance. Like all central banks, the RBA will do what it does when it does it. Which is fine, because as with much of the developed world, Australia’s economy seems to be growing just fine at the present interest rate structure, and stocks are likely looking well past whatever central banks may or may not do this spring and summer. The world may be hung up on when and how much short-term interest rates may fall, but stocks are looking elsewhere, like strengthening earnings growth.

UK GDP Shows Skepticism Remains

Sentiment in the US has certainly warmed lately, with pundits aplenty noticing the broadening market rally. But it isn’t universally warm, thanks in part to Europe and the UK keeping skepticism in the marketplace.

You can see this on full display in the reactions to the revised Q4 UK GDP report, which confirmed a -0.3% q/q contraction.^[v] The underlying details didn’t change much, with consumer spending still down a smidge, business investment recovering and government spending cushioning the overall blow somewhat. Yet the headline reactions were decidedly more dour than the initial report—which is a bit surprising, because a pretty strong January GDP report came out in the interim, leading many at the time to declare the “recession” over on the presumption Q1 would snap the sequential contraction streak. Some still say this, but we saw plenty of commentators talking down the results and noting that with immigration elevated, per-capita GDP is on a steady decline and taking living standards down with it. True enough from a statistical standpoint, but a sociological issue, and stocks see through such things.

To us, it all seems like pre-election angst bleeding into economic coverage. That is a normal occurrence, and it is part and parcel of the elevated uncertainty that accompanies campaigns—especially when a change in government looks likely, as it does in the UK based on the latest polling. That can weigh on returns in the near term, but there is a silver lining: It helps tamp down sentiment globally, putting emphasis on one of the developed world’s weaker links and keeping overall global growth expectations in check. It also creates opportunities for falling uncertainty to be a tailwind later this year, as data improve and investors get more election clarity.