- China’s easing of covid restrictions boosts Asian sentiment but raises concerns in West
- Natural gas prices in Europe dip to lowest since invasion of Ukraine
- Gold buying has surged
It appears that China’s recent easing of covid restrictions, while giving hope of a return to growth in the Asian giant’s domestic economy, is causing fresh jitters around the potential for exporting new variants of Covid into regions where many are successfully ‘living with covid’. This is reflected by moves from various countries to mandate negative test requirements on arrivals from China – the US this week also said it would require a negative test for arrivals from China while Italy has moved first in Europe with more than half of the passengers disembarking from a flight from China in Milan testing positive this week.
China’s easing of restrictions has boosted Asian shares this week but put a dampener on sentiment in the US where the S&P500 fell by 1.2 per cent and the Nasdaq by 1.4 per cent yesterday. This has bled into London in early trading today with the FTSE100 giving up 0.4 per cent while the DAX and CAC are flat in light trading.
Gas, oil prices fall back
There is potential light at the end of the tunnel in terms of inflation though. After signs that inflation may be peaking in major economies in the most recent data, dipping natural gas and oil prices are feeding into the narrative that we could be over the peak. Indeed, natural gas prices in Europe have fallen to their lowest levels since Russia’s invasion of Ukraine as milder than expected weather in Europe has allowed gas reserves to remain at healthy levels. How long this takes to be reflected in consumer energy prices remains to be seen but the price of petrol at the pump has already begun to fall as the oil price remains relatively becalmed.
European month forward gas prices dipped below €77 per megawatt hour yesterday having been above €300 per megawatt hour during the second half of 2022. Meanwhile oil has eased another 1.5 per cent today on demand concerns linked to a potential resurgence of covid.
Sticking with commodities, it appears that the heightened geopolitical uncertainty which looks to stretch well into next year has boosted demand levels for the oldest insurance policy of them all, gold. The World Gold Council has reported that demand for gold during 2022 has been at its highest level since 1967, with demand likely boosted by governments such as Russia and China looking to diversify their reserves away from the US dollar.
Consumers to rein in spending to meet living costs
Six out of 10 people plan to cut back on non-essential spending this year, with dining out and takeaways the two areas most likely to be sacrificed, according to KPMG.
A survey of more than 3,000 consumers’ spending habits found most people were cutting spending either because they were concerned their essential spending costs (food, energy, fuel and mortgage/rent payments) were already too high or were worried about them increasing this year.
Although a quarter of those surveyed said their discretionary spending habits wouldn’t change this year, only 4 per cent said they would have more to spend on luxuries.
Some 43 per cent of people said they are using savings to help meet essential costs, although this rises to 80 per cent among low-income households.
“These savings are finite, so the longer the current environment continues the more worrying it becomes,” said Linda Ellett, KPMG’s UK head of consumer markets, retail and leisure.
“Ability and appetite to spend on big ticket items is limited in this climate, but spending plans do remain for holidays, home improvements and appliances.”
One-in-10 of those polled had no savings to fall back on but among the remainder the average savings balance is around £7,371. In London, this fell to £4,725, the accountancy firm said.
