MARKETS WAIT FOR CLEARER SIGNALS FOR DIRECTION OF ECONOMIC GROWTH AND INTEREST RATES

  • MARKETS WAIT FOR CLEARER SIGNALS FOR DIRECTION OF ECONOMIC GROWTH AND INTEREST RATES

    MARKETS WAIT FOR CLEARER SIGNALS FOR DIRECTION OF ECONOMIC GROWTH AND INTEREST RATES

    Data Sourced from FE Analytics, and Bloomberg Finance LP

    MARKETS WAIT FOR CLEARER SIGNALS FOR DIRECTION OF ECONOMIC GROWTH AND INTEREST RATES

    This week has been very much more of the same with most major markets waiting for something to happen. In the UK, news that inflation has come down a bit is good news but not enough to declare job done for the Bank of England. In the US, the job market remains healthy and doesn’t suggest a recession is imminent, although a closer look does reveal a few signs of weakness. In Europe, the European Central Bank was at pains to stress that it doesn’t intend to change course whatever the data, at least for now. Pretty much everyone accepts that a change is coming, although there is little agreement on what comes next. This week provided no new clues to when or what that might be.

    Elsewhere, the reopening of the Chinese economy continues at pace. The sudden increase in global supply and the same pent up consumer demand we saw after our own reopening is set to reinvigorate a Chinese economy that was struggling with a deflating property bubble. As China is such a key part of the global economy its sudden revival could well be the catalyst for the anticipated change everywhere else.

    UK: CPI EASES SLIGHTLY HELPED BY FALLING PETROL PRICES

    UK inflation fell again in December as the Consumer Prices Index dropped to 10.5% from 10.7% in November. This is the second monthly decline since its 40-year high of 11.1% in October. The decline in CPI is mainly due to the drop in petrol and diesel prices, as food and other energy costs continued to rise. Core inflation (which excludes food and fuel) was unchanged on the November figure of 6.3%. The inflation update is inline with the Bank of England’s current forecast and sticky core inflation offers little incentive for it slow interest rates hikes and this caused sterling to rise against the dollar.

    UK economic growth was more upbeat as GDP grew by an estimated 0.1% in November. This is fairly weak growth – and could always be subject to revision in future – but it is more positive than many investors were expecting. Jobs data showed average earnings increased more than forecast, but at 6.4% this is well below inflation. Redundancies increased slightly as the unemployment rate for the three months to November ticked up from 3.5% to 3.7%.

    CHINA: INVESTORS HOPING FOR RETURN TO GROWTH AS GDP LAGS IN 2022

    Chinese growth slowed dramatically in 2022 as the country was subject to a rolling programme of severe lockdowns and restrictions. Annual GDP grew by 3%, considerably below the official target of 5.5%. The sudden release of anti-Covid restrictions in December has helped boost Chinese equities as global investors look for a swift return to pre-2022 growth. These hopes have been boosted by analysis which appears to show the Covid outbreak passing its peak – although this is about to be tested by the huge numbers of people travelling to celebrate the Chinese new year.

    The International Energy Agency predicts global demand for oil will hit an all-time high later this year as Chinese growth picks up. Several Wall Street banks have tipped oil to return to $100 a barrel as China’s consumption returns to more typical levels and Russian exports are restricted due to sanctions. The return to normal in China could offset weaker growth in developed countries but also has the potential to add to global inflation.

    US: MARKETS UNSETTLED AS JOBS MARKET REMAINS TIGHT

    US equities have fallen back this week after mixed economic news. Disappointing retail sales in December caused equities to decline mid-week, as discretionary spending fell more than expected. The outlook for businesses seems to have brightened as producer prices and new orders improved. There were fewer redundancies in January than expected, but this added to negative sentiment among investors as a strong labour market gives the Federal Reserve fewer reasons to slow its interest rate hikes.

    While the US jobs market remains robust overall, the tech sector continues to shed jobs. Microsoft has joined the list of firms making significant redundancies as they look to contain costs. Microsoft announced the loss of 10,000 jobs, around 5% of its global workforce, as it cut estimates for growth as customers scale back their spending plans. Amazon, Salesforce and Meta (owner of Facebook and WhatsApp) have all recently announced large scale redundancies, with the companies planning to cut between 5 and 12% of their workforce.

    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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