This week we got what should have been monumental news that the UK is officially in recession. The specific definition being used for this headline isn’t particularly useful however. Most people would associate a recession with rising unemployment, something we have yet to see. So far belt tightening in the retail sector is dragging down growth figures thanks to poor Christmas sales but if it keeps up, we can expect job losses eventually. That the last six months haven’t exactly been great for the UK economy should come as no surprise to anyone.

Elsewhere the mood is likely more upbeat over at the Bank of England. A recession is the best known cure for inflation and they’ve been trying to cause one ever since they started jacking up interest rates. How bad things need to get and for how long before they’re satisfied will be questions they’ll need to answer. In an election year this could be a boon to Labour who can now blame the government for causing a recession, but there is every chance the figures could be revised up in a few months and the Conservatives will take the credit for a recovery so it’s probably a wash.

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• Inflation: Markets choppy as UK and US send different signals
• UK: Enters recession as wage growth remains strong
• Equities: Big brands warn that consumers are more cautious

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

The UK is expected to have fallen into recession in the final quarter of 2023. GDP fell by 0.1% in the third quarter of 2023 and The National Institute of Economic and Social Research expects to see GDP contract for the second successive quarter when official figures are released next week. Meanwhile consumer spending continues to slow. Sales in January increased 1.4% compared to last year, but this is lower than the 1.9% increase in December and the value of retail sales has been below inflation for some time. The Recruitment and Employment Federation said hiring has slowed and starting salaries have fallen below the long-term average.

Not all news this week was gloomy as the UK’s services sector continues to expand and the outlook for the housing market has improved. The number of mortgage borrowers has increased as borrowing rates fall. Estate agents report more buyers and sales and the monthly surveys from Nationwide and Halifax show average house prices are rising.

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• Markets: Reassessing the timing of rate cuts as China takes steps to end the sell-off
• US: Equities gain but investors more cautious on bonds
• China: Equities rally, but persistent deflation is a problem

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

This week the Federal Reserve and the Bank of England both left interest rates on hold. The recent modest reduction of inflation meant the decisions to leave rates unchanged was no surprise. Jerome Powell and Andrew Bailey tried to cool expectations of early rate cuts but weaker US jobs data re-established the positive mood in bond markets as UK, US and European government debt rallied.

The more interesting story was in US equities as enthusiasm for high-growth tech stocks was tested by mixed trading updates. Although Microsoft’s revenue growth was better than forecast investors paused to catch their breath after its recent rapid growth. Meanwhile, shares in Alphabet and Apple fell as their relatively positive updates failed to keep up with investor expectations. Other tech stocks including Intel and AMD also fell this week as they failed to hit their revenue forecasts. Good results from Meta and Amazon showed tech stocks still have the ability to spring a positive surprise, but markets appear sensitive to any signs that tech stocks may not be able to live up to their high valuations.

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• Rates: US & UK rates held as investors look towards first cuts
• US: Tech stocks struggle to live with aggressive valuations
• Equities: New products deliver for Europe’s big Pharma stocks

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

US equities shrugged off the difficult start to 2024 as technology stocks led the market to further gains. Many big technology stocks are delivering trading updates in the next few weeks and expectations for sales growth have driven some rapid gains. Chipmaker Nvidia’s share price has risen 24% since the start of January as investors expect demand for high quality microchips to keep growing. IBM’s shares also jumped this week as growth of its AI business drove Q4 sales. Netflix saw its shares rally following a big increase in subscribers following its crackdown on password sharing.

Demand for advanced microchips is driving share prices of global stocks. South Korean chipmaker SK Hynix swung back to profit due to demand for chips with AI capabilities. ASML, a Dutch firm which makes chipmaking equipment, said Q4 revenues hit a record as sales increased 30%. Meanwhile, Q4 sales at Taiwan Semiconductor Manufacturing Co, Nvidia’s biggest competitor, were up 13% and it expects to see more demand this year.

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• US: Economic growth remains remarkably resilient as rate cuts appear more likely
• Rates: Markets look for direction from ECB and Bank of Japan
• China: Potential Government stimulus halts equities decline

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

This week the slight tick upwards in inflation and the weight of combined warnings from the world’s central bankers added to the cautious mood in 2024. Equities and bonds have given back a little more of their recent bumper gains as some investors consider whether enthusiasm for rate cuts is overdone. However, market movements this week seem to be more about timing than the overall picture. Wage growth continues to slow and lower energy and food costs are likely to keep headline inflation moving downwards. Falling retail sales adds to the picture of economic slowdown in the UK and Europe and rate cuts are widely expected later this year.

In contrast, tumbling Chinese equities are part of a longer-term trend. China’s growth rate is poor by its own standards and its property sector remains mired in problems. The drop in retail spending is also a concern as developing its domestic economy is a long-term goal. The government has so far avoided big stimulus programmes but it seems a significant change is needed to revive domestic and international confidence.

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• UK: Inflation feeds concern that rate cut speculation is overdone
• China: Equities slide as data shows economic problems persist
• Housing: Prices fall sharply, but some signs of optimism emerge

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

This week US headline inflation came in stronger than expected. A rise was on the cards but the increase was a bit bigger than forecast as higher energy and housing costs pushed inflation back up. Counter intuitively, particularly after the weakness in bond markets last week, US government bonds rallied slightly as markets looked past one inflation reading to focus on the bigger picture. Bond markets still clearly see rate cuts coming soon and it is going to take something more substantial than a single inflation print to shift opinion.

There was a similar reaction to the better GDP data in the UK. Against expectations, output increased 0.3% in November to offset the decline seen in October and make it possible that the UK managed to avoid a technical recession at the end of 2023. Higher services activity is encouraging, but one month’s data is not enough to improve the general outlook for the UK economy, particularly when seen in context of weak general retail spending over Christmas. Higher domestic energy costs coming through this month will also make any further slowdown in inflation harder.

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• Bonds: Investors look to inflation as a guide for interest rates
• UK: Employment market cools as recruiters report less demand
• Retail: Supermarkets celebrate Xmas, but shoppers turn cautious

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

The price of oil jumped due to fears that conflict in the Middle East is spreading. Several leaders of Hamas were killed in an explosion in Beirut and almost 100 people died in Iran following an explosion at a memorial ceremony for a former army commander. The Israeli government hasn’t commented but the governments of Lebanon and Iran blamed Israel for the attacks. Meanwhile, the US and UK have increased efforts to protect shipping in the Red Sea following more attacks by Houthi rebels in Yemen.

The risk of the war spreading caused the price of oil to rise more than 3% midweek as Brent Crude increased to $79 a barrel. However, this is below its price for most of the last six months and oil analysts expect weak demand to help keep prices down. The outlook for other energy commodities remains subdued. Coal continues to trade at recent low levels despite an increase in demand from Japan and Korea while a warm start to the winter in Europe and the UK means natural gas prices remain at the lower end of their recent range.

• 2024: New Year starts in a more cautious mood as enthusiasm for rate cuts runs out

This week the rally that lifted markets at the end of 2023 ran out of steam. Markets started with a bit of new year hangover and slightly weaker jobs data in the US and accelerating inflation in the Eurozone added to the sense that the pre-Christmas enthusiasm for rate cuts was overdone. The minutes from the December meeting of the Federal Reserve again put the US central bank at odds with recent market sentiment. Many Fed members favour leaving rates high for some time and this clashes with forecasts of the first cut coming as soon as March. But with economic data remaining mixed, like a Rorschach test conducted using spreadsheets, people will see what they want and short-term volatility is to be expected.

Meanwhile, Rishi Sunak gave a strong indication that the UK general election will be held in the autumn. That leaves one more chance for a pre-election giveaway in the March budget. This seem unlikely given his previous refusal to consider tax cuts until the UK economy is growing so time is rapidly running out for the government to show that economic growth is on track or for people to feel the benefit in their disposable income.

• Global: Markets fall as expectations of rate cuts recede

Equity and bond markets have given up some recent gains as trading in 2024 got off to a weak start. Falling US, UK and European government bonds pushed up yields as markets reduced expectation for interest rate cuts this year. In the US, the minutes from the last rate meeting of the Federal Reserve showed many policymakers favour leaving rates high to ensure inflation continues to fall back to target and this undermines the assumption that the first rate cut will be in March. Meanwhile, rising inflation in France and Germany casts doubt on the European Central Bank’s willingness to cut rates.

Economic data from the US shows the jobs market continuing to cool. The number of job vacancies has fallen to its lowest in almost three years and the number of people voluntarily leaving their jobs dropped steeply. The more pessimistic outlook caused global equity markets to fall back and the biggest declines were seen in sectors like US technology stocks which gained the most in the end of year rally.

• Retail: Contrasting fortunes for UK High Street trading

The first updates following the key Christmas trading period paint a mixed picture. Next upgraded its forecast for full year profits again as full price sales increased almost 6% compared with last year. It said full year profits are expected to rise to £905m, up from its last forecast of £885m. However, shares in JD Sports fell heavily after it
reported weaker Christmas trading as comparable sales were up almost 2% from last year. This was less than it expected as consumers turned more cautious.

Supermarkets reported a bumper December as grocery sales hit a record £13.7bn. However, the rise in spending was reliant on a big increase in discounts and special offers as sales volumes increased by just 2%. Almost a third of supermarket spending over Christmas was on items on a promotion. The rise in special offers and discounts helped drive down food inflation as Kantar reported grocery inflation slowed from 9.6% in November to 6.7% for the year to the end of December.

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

The latest international conference on climate change ended with a commitment to phase out fossil fuels in order to meet the target of limiting the increase in global temperatures and reach net zero for carbon emissions by 2050. This was despite significant opposition from many oil producers, including Saudi Arabia and host country the United Arab Emirates.

Oil has fallen in recent months despite efforts from Opec nations to push the price up by cutting supply. The International Energy Agency said there has been a sharp drop in global demand in the last quarter as economic growth slows and Covid-era supply issues are finally resolved. The IEA says supply from non-Opec nations should be more than enough to cover any increase in demand next year. Meanwhile the price of natural gas has dropped sharply as a warm start to the northern hemisphere winter and additional supply of liquified natural gas from the US have all pushed gas prices back towards their long-term levels. 

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• Markets: Continue to rise as US Federal Reserve indicates rate cuts are on the way
• Rates: Bank of England holds rates as economy cools
• USA: Rally continues as FED indicates rate cuts likely in 2024

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

This week we saw more enthusiasm for government bonds as investors doubled down on the view that central banks will cut rates in 2024 and will cut them significantly. European government bonds led the rally following comments from several ECB members that appeared to confirm the view that the bank has finished hiking following the rapid slowdown in inflation. This was supported by lacklustre European economic growth. However, mixed signals on the strength of the US jobs market meant US government bonds gave back most of their gains.

The shift in sentiment has been dramatic. Only a few weeks ago the ECB was expected to leave rates elevated for longer than the Bank of England and Federal Reserve but markets are now pricing in up to six cuts in 2024 with rates brought down by 1.5 percentage points. Many bond investors will be cheered by the gains but the rapid change in outlook increases the chance that recent enthusiasm is overdone. In the short term markets are likely to be driven by each fresh data release or speech by a central banker. 

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• Bonds: Bond markets raise chance of disappointment as they price for aggressive rate cuts on 2024
• India: Outlook for strong growth helps drive Equities higher
• Equities: Airlines benefit from sustained demand for travel

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

This week saw government bonds lead a broad market rally once more. Better news for inflation and a gradual slowdown in economic activity raised hopes that the Federal Reserve may be able to engineer a soft landing, and bond markets are now hoping for rate cuts in the first half of next year. This caps a good month for markets and fixed income and global equities made significant gains. The positivity even extended to out of favour markets like UK equities and emerging markets shrugged off ongoing problems in China to record a post a strong gain. The outlier is commodities as a modest rise in gold has been offset by a significant drop in oil and gas prices.

The rally is welcome, particularly after recent challenging conditions for fixed income assets, but central banks remain cautious about declaring victory over inflation too soon. Another reason to avoid getting carried away is the time lag between rate hikes and their eventual effect on the economy. This usually takes 12 months to two years, so there is still a long way to go before the full impact of the recent hikes is apparent.

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• Us: Bonds and Equities rise as economy shows signs of slowing
• Retail: MUS consumers splash out during key Black Friday weekend
• China: Surprise drop in manufacturing output drags on stocks

(*Please note, The contents of this e-shot 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. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)