2023 BEGINS WITH A SENSE OF DEJA VU AS INFLATION EASES AND THE US FED PROMISES MORE ACTION

  • 2023 BEGINS WITH A SENSE OF DEJA VU AS INFLATION EASES AND THE US FED PROMISES MORE ACTION

    2023 BEGINS WITH A SENSE OF DEJA VU AS INFLATION EASES AND THE US FED PROMISES MORE ACTION

    Data Sourced from FE Analytics, and Bloomberg Finance LP

    2023 BEGINS WITH A SENSE OF DEJA VU AS INFLATION EASES AND THE US FED PROMISES MORE ACTION

    This week we have seen the new year begin almost exactly where 2022 left us. There are further indications that inflation may have peaked, while the US Fed has been busy telling markets that they are not taking its willingness to tackle inflation seriously enough. Other themes from 2022 which are likely to continue this year are the UK economy is set to lag other developed nations, while Covid retains the potential to disrupt the global economy due to its impact in China.

    It is not all bad news. The sharp drop in gas prices is welcome both for the lower cost to consumers and for the dampening effect it has on inflation. Republicans’ failure to elect a speaker of the US House of Representatives has provided a diversion this week – but memories of the calamitous first attempt to replace Boris Johnson last summer should keep a lid on any schadenfreude. Initial data shows some retailers enjoyed strong Christmas trading, however, the start of 2023 is expected to be challenging as consumers continue to deal with the rising cost of living.

    COMMODITIES: GAS PRICES FALL SHARPLY AIDED BY WARM WEATHER

    Gas prices have fallen steeply in recent weeks, helped by unseasonably warm weather. The European wholesale gas price has fallen more than 50% over the last month and is now at its lowest in 12 months. The UK gas price has fallen by a similar amount to trade at 162p a therm, down from almost 640p in late August. Lower energy costs will boost UK and European government finances as they significantly reduce the cost of state energy price support. US natural gas prices have also fallen sharply while Brent Crude oil is trading near its lowest level in 12 months at $80 a barrel.

    If prices stay low they will start to feed through to inflation, adding to recent downward pressure from lower petrol and diesel prices. Lower energy costs will also be felt by consumers. The drop in gas prices could see domestic energy costs fall below the government’s Energy Price Guarantee, so consumers should see their bills falling in the second half of the year if prices remain at current levels or fall even lower.

    UK: RETAILERS FACE A TOUGH 2023 AFTER MIXED CHRISTMAS TRADING

    The first Christmas trading updates show good sales from some of the high street’s big names. Next reported sales and profits above expectations, while Greggs, Aldi and B&M also reported strong trading in the run up to Christmas.

    However, general high street trading appears to have cooled since Christmas. The post- Christmas sales have failed to tempt large numbers of shoppers back to the high street. Retail consultancy Springboard Research reported that the number of shoppers was down 27% in the week after Christmas, and this was almost 20% below pre-Covid levels.

    Retailers are expected to experience a difficult first six months of 2023. The British Retail Consortium said shop price inflation began to slow in December but remains high at 7.3%, and food inflation continued to rise above 13%. It expects high prices and low consumer confidence to continue to depress activity and predicts sales will increase by 2.3% in the first half of the year before picking up as inflation eases and confidence begins to return.

    PROPERTY: INVESTORS STUCK AS FUNDS GRAPPLE WITH REDEMPTIONS

    Investors in physical property funds continue to face a block on redeeming their investments. BlackRock UK Property has confirmed it is continuing to defer redemption requests after it suspended withdrawals in September. M&G Secured Property Income has also extended the redemption delay it applied in November. Schroders, Columbia Threadneedle and CBRE all introduced restrictions to their UK property funds to manage liquidity following a big increase in redemption requests last autumn as some pension funds tried to raise cash to manage their exposure to liability-matching strategies that went wrong when gilt yields spiked suddenly after Kwasi Kwarteng’s mini-budget.

    Commercial property values fell heavily in 2022, particularly in the second half of the year. Property companies such as Land Securities and British Land have written down the value of their portfolios as rising interest rates erode valuations. Funds in the Investment Association property sector have declined by an average of 17% over the last 12 months.

    For more information regarding our weekly market reports, we encourage you to give us a call on 01732 746188 or send us an email at enquiries@foxgroveassociates.co.uk.

    This document has been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. Financial Express Investments Ltd, registration number 03110696, is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit https://www.fefundinfo.com/en-gb/about/legal-and-policies/.

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