Firstly, looking at the macro picture, the recent data releases highlight stable inflation, a resilient labour market, and an economy growing mainly due to higher consumer spending on energy and business spending on AI. Higher tariffs and much higher energy exports should support growth over the next few months, while consumer spending capacity will definitely be challenged as inflation remains sticky, with inflation likely to increase much more. 

Looking at the data, the US economy expanded at an annualized rate of 2% in Q1 2026, up from the 0.5% in Q4 but below forecasts for 2.3%. Taking a look at the individual components, the outperformers have been Government spending (rebounded by 4.4%, from a 5.6% contraction in Q4 as shutdown ended and business spending on AI (up 10%). The negative has been consumer spending, which accounts for roughly two-thirds of economic activity, and only rose at 1.6% in Q1. 

As last month, core and headline inflation remain in line with previous readings and forecasts, with headline inflation 0.1% higher and core inflation 0.1% lower. PPI has also remained at 0.5% month-on-month, despite elevated forecasts of 1.3%.   

We didn't get any new labour data since the last newsletter. As a reminder, nonfarm payrolls showed strength, adding 178K jobs, while unemployment also dropped to 4.3%, the lowest in the last 12 months. 

Personal spending remains strong, rising 0.5% month-on-month, while Retail Sales outperformed, rising 1.7% from last month, up from 0.7% previously and 1% forecast. However, a big component of retail sales has been the double-digit growth in gasoline spending, following the energy price spike due to the war in Iran. 

Finally, the manufacturing index has been printing consistently in growth territory since the start of the year, fuelled recently by US energy exports hitting all-time highs as SPR gets exported to countries that can't get oil from the Strait. 

Looking at the housing market, mortgage rates have retraced this month after a swift increase in March. The 30-year mortgage has come off by almost 15 bps, while the 15-year mortgage is down by 10 bps, reversing around 30% of last month's move. That said, we are still at very high levels, which hurts affordability and keeps a ceiling on property prices. 

The median sale price for existing homes has been rallying since January, after bottoming out during a 6-month sell-off. For the month, median existing home prices rallied by almost 3%. 

Existing home sales fell by 3.6% from the previous month, hitting the lowest in nine months and missing expectations. Inventory levels inched higher to 1.36 million, equivalent to 4.1 months of supply. 

The Case-Shiller Home Price Index rose only 0.9% year-on-year in Feb, from 1.2% in January and below forecasts of 1.1%. This marks the slowest growth since the summer of 2023, and for the ninth consecutive month, housing prices haven't provided positive returns over inflation.  

The Bank of England once again kept rates unchanged, with the most important data readings coming in line with forecasts. Gilt yields continue rallying and are in sight of their recent local highs, currently at 4.95%.  

Inflation increased to 3.3% from 3% last month, as expected, fuelled by energy costs. The country is particularly exposed to the prices of diesel for driving and jet, which has been somewhat covered by importing US jet. 

The positive surprise was GDP growing by 0.5% month-on-month vs. the 0.1% forecast, the highest growth since January 2024; however, all this data predate the Iran war. 

On the labour front, unemployment fell to 4.9% from 5.2%, partly due to many leaving the workforce. Manufacturing PMI came in at 53.7, as new orders grew rapidly both domestically and for exports. Overall confidence in the industry remains at a one-year low due to the war.   

We eventually got a flip this month, with the housing market performing much worse than the UK macro picture. The increase in yields, which moves mortgage costs higher, is a headwind for property prices, especially in most of England.  

The Halifax House Price Index showed UK house prices rose 0.8% year-on-year last month, missing the expected 1.5% and down from a revised 1.2% in February and also down 0.5% month-on-month. 

The RICS Market Survey showed the house price balance declined to -23% in March, marking the weakest reading since December 2023 and coming in below market expectations of -18%. Regionally, London, East Anglia, and the South East and South West of England all posted more negative net balance readings compared to the average, while Northern Ireland and Scotland continued to see price growth. The forward forecast has become even more negative, with the near-term house price expectations index dropping to a balance of -43% in March, a big move from -19% in the previous month. According to this forecast, the market is expected to keep selling off over the next 2-3 months. 

China’s GDP grew by 5.0% year-on-year during Q1 2026, accelerating from 4.5% in Q4 and beating forecasts of 4.8%. This was China’s fastest annual growth in three quarters, supported mainly by resilient export numbers. The Iran conflict will definitely be a headwind; however, the country's enormous crude stockpiles, its diversified energy mix, and state controls have helped contain the damage so far. Even though industrial output rose more than expected last month, retail sales growth fell short of estimates.

For the housing market, once again, there is no light at the end of the tunnel. China’s new home prices across 70 cities dropped once again by 3.4% year-on-year in March, following the 3.2% drop recorded for January. We are now at the 33rd consecutive drop in house prices. 

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