Grocery shopping at a Whole Foods store in Berkeley, California,
Will consumer spending in the US, and the lack of spending by some Chinese customers, be a key factor in those countries’ economic recoveries, and what next for palladium? © FT montage; Bloomberg

Be the first to know about every new Coronavirus story

Will US retail sales reach further heights?

US retail spending has rebounded to set record highs since June, after plunging during the early months of the year as the coronavirus pandemic swept through the country. On Friday, investors will find out whether figures for September show a continued upswing.

The data is an important gauge for the strength of the American consumer, whose spending accounts for about two-thirds of US economic activity.

June’s record for retail sales was followed by another in July and again in August, when $537.5bn was spent — an all-time high in data compiled by the US Census Bureau since 1992.

“Retail sales in the US, the UK and in the Europe area are already running above pre-Covid levels,” said Chetan Ahya, chief economist and global head of economics for Morgan Stanley. “This continues to confirm our V-shaped recovery call.”

Economists polled by Bloomberg expect spending to rise 0.7 per cent in September from the previous month, on a seasonally adjusted basis. In August, spending rose 0.6 per cent, falling short of expectations of a 1 per cent rise.

But an increase in coronavirus infections, further lockdowns or slowing spending through the winter could weigh on the outlook for the remainder of the year.

Sustained growth in US consumer spending has also been challenged by the expiry in July of the extra $600 in weekly unemployment benefits under the stimulus package provided by the Cares Act. Richard Henderson

Line chart of Monthly retail sales ($bn)* showing US retail spending has rebounded above pre-pandemic levels

Will slowing consumer inflation test the PBoC’s restraint?

The People’s Bank of China has stood out among central banks this year for how little monetary stimulus it has introduced to cushion the pandemic’s economic impact. But that caution could be tested on Thursday with the release of consumer price index data for September.

While China’s economy is tipped to grow this year, in contrast to many of its peers, consumption remains subdued. Early indicators, however, suggest the domestic tourist rush during the seven-day Golden Week national holiday, which concluded last Thursday, was better than expected.

Analysts at Bank of America expect China’s consumer inflation to ease further in September to a year-on-year rise of 1.7 per cent. In January, it was running at 5.4 per cent.

Pork prices have played a key role. Official inflation readings on the sector have trended lower in recent months. However, experts have estimated that China’s frozen pork reserves are close to exhaustion after the government sold meat to dampen prices in a market suffering continued disruption from outbreaks of African swine fever.

Jingyang Chen, an economist at HSBC, said China’s consumer price growth “is likely to see a downward trend in the rest of the year” on the back of weak domestic demand and a sluggish recovery for the private sector.

“All this means is that the PBoC will have ample policy space to keep its policy stance accommodative in the coming months to support a continued recovery in domestic demand,” Ms Chen said. Hudson Lockett

Will palladium’s rally continue?

Palladium has been one of the best-performing precious metals this year, up in price by more than a quarter. But the pandemic has sped up the global decline in car sales, putting the outlook for the metal in jeopardy — given its common usage in catalytic converters to reduce harmful exhaust emissions.

The metal’s price doubled between 2017 and 2019, as carmakers in China installed palladium-rich catalysts to meet stricter emissions regulations. In Europe, the advent of “real driving” tests, which measure pollutants released while cars are driving on a road rather than in a lab, has also boosted demand.

Palladium, up about 3 per cent on Friday at $2,450 an ounce, is now almost three times more expensive than platinum, a precious metal with similar chemical properties that is also used in catalysts — mostly for diesel cars.

Prices for palladium will continue to be supported as the supply from mines in Russia and South Africa struggle to keep up with demand, predicts James Steel, an analyst at HSBC in New York. A bigger question for the market, however, is how the Covid-19 crisis will affect the path of new-car sales.

“We believe the Covid-19 pandemic will continue to weigh on the global economy and negatively impact consumer behaviour,” said analysts at Renaissance Capital. Citing the decline over the past two years, they added that vehicle sales are “unlikely to even reach 2019 (pre-pandemic) levels by 2022.” Henry Sanderson

Get alerts on Markets when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article