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Astute Market Overview - 6th February 2024

Welcome to the latest Astute Market Overview covering interest rate decisions, US jobs data and finishing on some share specific news.

Since our last update, there have been central bank monetary policy meetings from the Bank of England (BoE), European Central Bank (ECB) and the Federal Reserve (Fed), who all held their key interest rates steady.

The last hike in rates from the Bank of England was in August (July for the Fed, September for the ECB) and so it seems like we have been saying that interest rates are being held steady for a long time! However, whilst no change means no juicy headline, interest rates are currently at restrictive levels; this pause is causing pressure. Furthermore, the most interesting insights can be gleaned by reading the minutes and listening to the narrative.

The Bank of England’s decision to hold rates wasn’t unanimous, it was split three ways, with one member voting for a reduction in interest rates and two members voting for an increase. The central bank projects inflation to fall to its 2% target in the second quarter of the year, then then to bounce slightly higher, ending the year above target.

Following the Fed Open Market Committee meeting, the central bank signalled that rate will be cut, but not imminently. In a later interview, Jay Powell, the chair, said that the group that set rates, on average, expected 0.75% in interest rate cuts, perhaps flashing his cards a little bit more than the other central banks, particularly the ECB who weren’t giving anything away.

Sticking with the US, jobs data was released last Friday and highlighted a strong and thriving US labour market. The number of new jobs surprised to the upside, with nonfarm payrolls increasing by 353,000 in January whilst the unemployment rate remained steady.

353,000 came in much higher than expectations of 180,000 (around half) and laughs in the face of expectations of a struggling US economy and imminent recession. All in all, this is good news for workers in the US, and for Joe Biden and the Democrats, who can boast a strong economy and labour market despite global high inflation, ahead of November’s election.

And finally, looking at two pieces of share specific news, the FTSE 100 received a boost from BP (one of the biggest companies in the FTSE 100) following stronger than expected profits, buying back their own shares, and talk of the oil giant’s clean-energy strategy.

Growth in the S&P 500, a major US stock market, was carried by a small few in 2023: The Magnificent 7. The phrase replaces “FAANG” the acronym for strongly performing US tech companies Facebook, Apple, Amazon, Netflix, Google, out of date not least because Facebook is now Meta and Google is now Alphabet! The Magnificent 7 are technology companies that dominate the US market (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla). One of the biggest companies in the S&P 500 and a member of the 7, Meta, saw its shares increase by 20%, driven by strong profits and by AI, with development of tools and applications on the horizon.

Coming up, some key markets will close for Chinese New Year and National Day in Japan, and we’ll be watching out for inflation and economic growth releases for the UK.

See you next time.

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