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Astute Market Overview - 9th January 2024

Hello, and welcome to our first Astute Market Overview of 2024 – our chance to provide an overview of financial markets and discuss anything interesting that’s happening in the macro-economic environment.

As 2024 begins, we feel that one of the biggest questions of 2023, “how high will rates go?”, is now out of fashion, and the question du jour is “when will rates be cut, and by how much?!”. This has certainly been reflected in market moves towards the end of the year: in December, many key investment markets carried on the momentum from a strong November and closed out December on a high due to the expectation for interest rate cuts in 2024.  Moving to January so far, and investment markets have paused for breath, and have given up some of December’s growth. A large contributor to this end of 2023 lift was the Federal reserve amending their projections for interest rates cuts and inflation, which we touched upon in our last Astute Market Overview.

Since then, the release of November’s UK consumer prices index (CPI) inflation on 20th December buoyed markets, given that it defied expectations by coming in at 3.9%, lower than economists had forecast, revealing that inflation in the UK is quickly falling towards the Bank of England’s (BoE) 2% target. The headline CPI figure quoted compares November 2023 to November 2022. The monthly figure – which compares November 2023 to October 2023, revealed a decrease of 0.2%. Out of the large selection of goods and services measured, the most noticeable contributors to easing inflation were transport, recreation and culture, and food and non-alcoholic beverages.

In addition to defying economists’ forecasts, in the central bank’s own November Monetary Policy Committee meeting, they released forecasts for CPI inflation, which are well above the levels at which inflation has now materialised. Expectations for base rate cuts have shifted, with investors expecting more rate cuts, and sooner. Whilst these are just expectations of what the central bank will do, they feed through to savings and debt, and are great news for mortgage holders – monthly data released this week from the BoE revealed a fall in December’s mortgage rates.

Sticking with the UK – since our last overview, the Office for National Statistic revised UK Gross Domestic Product (GDP) downwards. GDP for the third quarter of the year was revised downwards to show a drop of 0.1%. Furthermore, GDP for the second quarter of the year was also revised downwards. Previously, Q2 GDP was estimated to show small growth quarter on quarter of 0.2%, this is now revised to show no growth at all. This highlights that the UK economy hasn’t held up quite as well as first thought, though it has avoided a recession thus far.

And finally, US jobs data was released last week, revealing that the US labour market remains resilient through rising interest rates and high inflation. 216,000 jobs were added in December, and the unemployment rate remained unchanged at 3.7%.

Coming up, we will have the release of Consumer Prices Index inflation from the US, UK and Eurozone, in addition to Eurozone industrial production, GDP for China, and US and UK retail sales.

See you next time.

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Astute Market Overview – 25th January 2024