Market Commentary 2024

US inflation rose marginally to 2.7% in November, aligning with consensus and reinforcing expectations for a Federal Reserve rate cut next week

US inflation rose marginally to 2.7% in November, aligning with consensus and reinforcing expectations for a Federal Reserve rate cut next week, likely lowering rates to 4.25%-4.5%. The increase from 2.6% last month was driven by housing, though data suggests these pressures may be declining. Fed Chair Jay Powell indicated caution on further cuts to balance inflation and unemployment risks. Treasury Secretary Janet Yellen warned Trump's proposed tariffs could disrupt inflation control, as analysts anticipate a slower pace of rate cuts in 2025. Markets reacted positively, with the S&P 500 and Nasdaq gaining, while Treasury yields dipped in anticipation of...

November job growth rebounded with 227,000 new nonfarm jobs, up from October's revised 36,000, as strike and storm effects eased.

November job growth rebounded with 227,000 new nonfarm jobs, up from October's revised 36,000, as strike and storm effects eased. Unemployment rose slightly to 4.2%, with labour force participation dipping to 62.5%. Key sectors like health care (+54,000) and leisure (+53,000) led gains, while retail lost 28,000 jobs. Wages increased 0.4% monthly and 4% annually, slightly above expectations. Despite cooling inflation, recent labour and price trends pose challenges for the Federal Reserve. Strong hiring but higher unemployment provides mixed signals, bolstering expectations for a Fed rate cut in December, with markets pricing in an 88% chance. US equities showed strength...

The UK economy grew at 0.1% in the third quarter which was seen as a miss given the expectations were for an expansion of 0.2% and Q2 saw an expansion of 0.5%.

The UK economy grew at 0.1% in the third quarter which was seen as a miss given the expectations were for an expansion of 0.2% and Q2 saw an expansion of 0.5%. Mainly the weakness came from the services sector which expanded just 0.1% and is 80% of the British economy. This result will likely add more pressure on the Bank of England to cut interest rates to help fuel growth but with inflation still above target in certain areas and the latest Labour budget being, on the margin, inflationary in nature, cutting rates is not without its risks.

The Bank of England has cut its interest rate today by another 0.25% taking the UK interest rate to 4.75%. This latest cut goes on top of the 0.25% cut made in September to bring UK intertest rates down by half a percentage point this year.

The Bank of England has cut its interest rate today by another 0.25% taking the UK interest rate to 4.75%. This latest cut goes on top of the 0.25% cut made in September to bring UK intertest rates down by half a percentage point this year. Whilst the Labour budget was seen as an inflationary action, the BoE believe inflation remains on a steady path towards 2% even with the budget in play. However, the governor did qualify this by remarking that he wanted to avoid cutting rates by too much, too fast in the future. The Gilt market was...

US job creation in October showed just 12,000 jobs created against expectations of 100,000 and below the September number of 223,000.

US job creation in October showed just 12,000 jobs created against expectations of 100,000 and below the September number of 223,000. Safe to say the jobs created were well below even the widest of expectations. The miss shows further weakness in the US jobs market and thus puts up further evidence that the US economy is continuing to slow. Despite the number being disappointing there were a number of seasonal factors which served to disrupt the report such as hurricane Milton and Helene which were in full swing as the report was drawn thus making the numbers somewhat open to...

Eurozone inflation rose to 2%, hitting the European Central Bank's (ECB) target and raising the likelihood of a smaller, quarter-point interest rate cut in December

In October, Eurozone inflation rose to 2%, hitting the European Central Bank's (ECB) target and raising the likelihood of a smaller, quarter-point interest rate cut in December. This rise exceeded analysts' expectations of 1.9% and came after a 1.7% figure in September, which was the first time inflation had fallen below the ECB's target in over three years. With core inflation (food and energy stripped out) steady at 2.7% and high services inflation at 3.9%, there is a cautious outlook for ECB policy.

In September, British retail sales unexpectedly rose for the third consecutive month, increasing by 0.3%, mainly driven by purchases of the new iPhone.

In September, British retail sales unexpectedly rose for the third consecutive month, increasing by 0.3%, mainly driven by purchases of the new iPhone. This exceeded the 0.3% decline forecasted by economists and marked the highest sales volume since July 2022. The figures suggest that weakened consumer confidence in September, driven by concerns over expected tax rises in the October 30 Budget, is not feeding through to consumer spending. The news boosted the pound against the dollar and euro, while bond yields also increased slightly.

The European Central Bank (ECB) has reduced interest rates by a quarter-point to 3.25%, marking the lowest level since May 2023.

The European Central Bank (ECB) has reduced interest rates by a quarter-point to 3.25%, marking the lowest level since May 2023. This decision follows a similar cut last month and reflects concerns over weakening growth and inflation in the Eurozone. The ECB indicated that inflation pressures are now expected to be lower than previously forecasted, with inflation falling to 1.7% in September, below the 2% target for the first time in over three years. Traders anticipate additional rate cuts in the coming months, with a strong likelihood of another reduction in December. While the ECB emphasised a data-driven approach to...

US inflation fell to 2.4% in September, slightly above expectations, reinforcing predictions of a Federal Reserve interest rate cut in November.

US inflation fell to 2.4% in September, slightly above expectations, reinforcing predictions of a Federal Reserve interest rate cut in November. Core inflation rose to 3.3%, and jobless claims jumped, prompting markets to price in a 90% chance of a quarter-point cut. While inflation has cooled for six months, progress is expected to slow. Despite economic uncertainty, the labour market remains strong with 254,000 jobs added in September. This economic picture, just before the November election, has drawn criticism from the Trump campaign, while Fed officials remain optimistic about a 'soft landing.'

67 year-old Shigeru Ishiba has been elected as the new Prime Minister of Japan, at the fifth time of asking.

67 year-old Shigeru Ishiba has been elected as the new Prime Minister of Japan, at the fifth time of asking. The news came as a surprise to Japanese stock markets which, in the week prior, had risen almost 5 per cent on the suggestion that Sanae Takaichi was favourite. Takaichi would have likely advocated to maintain very low interest rates and follow the market friendly economics which has defined Japan for many years, coined ‘Abenomics'. Instead the Nikkei 225 index dropped 4.8% on Monday as the market weighed up Ishiba's pro rate rise rhetoric, leading to a stronger domestic currency,...

The Chinese government today announced a planned economic stimulus aimed at bolstering and supporting economic growth in the country.

The Chinese government today announced a planned economic stimulus aimed at bolstering and supporting economic growth in the country. The Chinese economy has faced significant challenges in recent years, particularly due to the sharp downturn in the real estate sector following the collapse of Evergrande, a major player in the industry. This stimulus package follows increasing concerns from economists about China's ability to achieve its targeted 5% growth for the year. The stimulus includes funding for brokers and insurance companies to purchase stocks, with the aim of driving a recovery in share prices. Additionally, there will be support for companies...

Bank of England have chosen to keep interest rates where they are at 5%. UK remains in a fight against inflation which seems, in some areas to be rising once again.

In contrast to the US cutting interest rates yesterday, today the Bank of England have chosen to keep interest rates where they are at 5%. Much of the UK remains on a solid economic footing with a good jobs market which are all calls not to cut rates because there is less of a recessionary narrative to combat. Second to that, the UK remains in a fight against inflation which seems, in some areas to be rising once again. Given the possibility of a resurgent inflation narrative it makes sense that the UK held off cutting interest rates further at...

The US Federal Reserve on Wednesday made a half percentage point cut to the US interest rate.

The US Federal Reserve on Wednesday made a half percentage point cut to the US interest rate. The cut, which was the first since the onset of COVID, was on the lager end of the scale with many investors expecting just a quarter point cut to the key interest rate. Markets were predictably volatile in the wake of the announcement with stocks and bonds rallying then falling back. FED governor Jay Powell announced that the cut was larger to assist in offsetting any recessionary forces in play but also tempered enthusiasm by restating the future path of inflation and employment...

Next week, the US Federal Reserve is anticipated to announce its first interest rate cut since the hikes of 2022

Next week, the US Federal Reserve is anticipated to announce its first interest rate cut since the hikes of 2022. Market expectations strongly suggest a reduction is likely, though the exact magnitude of the cut remains uncertain. Today's US inflation report met forecasts, with both the expected and actual core CPI figures at 3.2%. With inflation coming under control and the economy not showing significant weakness, the market's reaction to this data indicates increased confidence in a 0.25% rate cut next week. This is evidenced by an initial slight decline in US equity markets and a rise in US bond...

US Government bonds rallied and global stocks were under pressure after weaker-than-expected August payroll data fuelled investor expectations of aggressive interest rate cuts by the US Federal Reserve.

US Government bonds rallied and global stocks were under pressure after weaker-than-expected August payroll data fuelled investor expectations of aggressive interest rate cuts by the US Federal Reserve. The U.S. economy added 142,000 jobs in August, below the forecast of 160,000 but higher than the downwardly revised 89,000 figure published for July. Investors raised bets on a 0.5% interest rate cut, which would be beneficial for the economy, at the upcoming Fed meeting, with markets pricing a more than 50% chance, up from 40%. European stock markets also declined with U.S. futures pointing to a weaker start. The dollar fell...

The Bank of Japan (BoJ) has raised its benchmark interest rate to approximately 0.25%, up from the previous range of 0% to 0.1%

The Bank of Japan (BoJ) has raised its benchmark interest rate to approximately 0.25%, up from the previous range of 0% to 0.1%. This move underscores the central bank's commitment to normalizing its monetary policy. Alongside this rate hike, the BoJ has announced plans to reduce its monthly bond purchases to around ¥3 trillion ($19.9 billion) by the first quarter of 2026, halving the recent pace of purchases. Governor Kazuo Ueda indicated that future rate hikes would be data-dependent, emphasizing the need to monitor the effects of the current and past increases. The BoJ's decision reflects a significant shift from...

President Biden has today stepped aside from the upcoming presidential election and will no longer run for re-election.

President Biden has today stepped aside from the upcoming presidential election and will no longer run for re-election. This development has come after months of speculation about the state of the president’s health with many seeing this development as a foregone conclusion. In the announcement, rather than opening up the democrat seat to a contender the president has endorsed VP Kamala Harris to run for president. This should at least rally the party around a new contender to compete against Trump in the November elections.

With polls closing in the UK last night, the exit polls suggest a landslide victory for the Labour party and a loss for the Conservatives which hasn’t been seen since 1945.

With polls closing in the UK last night, the exit polls suggest a landslide victory for the Labour party and a loss for the Conservatives which hasn’t been seen since 1945. Whilst this was largely expected, the big winners were also UK reform which took more seats than anticipated highlighting the desire in the UK population about wanting to deliver change to the UK political landscape. The market showed little reaction to the news with the Pound and FTSE All share rallying at the open suggesting the market sees a Labour majority as a positive step towards stability for the...

Headline inflation in the UK has dropped to 2% today

Headline inflation in the UK has dropped to 2% today, in line with forecasts and now meeting the Bank of England's aim of a stable rate of inflation. Services inflation, despite having decreased 20 basis points, remains high at 5.7%; an area of concern for the Bank of England when considering rate cuts. Thus, interest rates are forecasted to remain constant at 5.25% following tomorrow's MPC meeting. The UK has proven resilient in the aftermath of COVID – sharp monetary tightening is proving effective for controlling the highest price rises since the early 80s. In other areas, such as the...

US inflation dropped to 3.3% in May, slightly below economists' expectations. This led investors to anticipate earlier interest rate cuts

US inflation dropped to 3.3% in May, slightly below economists' expectations. This led investors to anticipate earlier interest rate cuts, with 2 quarter-point cuts forecast by the end of the year, which boosted markets. Traders now see an 84% chance of a rate cut by the Federal Reserve (Fed) before the presidential election, up from 60%. Core inflation, excluding food and energy, was 3.4%, also below expectations. The Fed is expected to keep rates at 5.25-5.5% when they meet later today.

Emmanuel Macron last night called a surprise snap election in France.

Emmanuel Macron last night called a surprise snap election in France. This came as a direct response to his ruling party loosing badly in an EU parliamentary vote to Marine Le Pen’s far right party. Much speculation abounds about why Macron chose to announce an election after a big political defeat, but one thing is clear, it’s a risk to centralist French politics and thus a risk to French stability and to the continuity of the EU in general. In turn this has implications for the UK and importantly Europe’s approach to the current war in Ukraine. The Euro fell...

Recent US jobs data falls out of sync with previous indicators which pointed to economic weakness.

Recent US jobs data falls out of sync with previous indicators which pointed to economic weakness. Non-farm payrolls advanced 272,000 in May trumping estimates, wages also climbed 4.1% from a year ago, whilst unemployment unexpectedly rose to 4%. These readings portend to a bleaker view for the US, in which inflationary pressures persist whilst unemployment ticks up, bringing on the risk of stagflation. The upside surprise in jobs growth and wages also pushes the Fed further from comfort in order to begin easing policy, which is in contrast to Europe and Canada who begun cutting rates this week. On a...

The latest UK inflation report shows that consumer prices eased to 2.3% from a year earlier.

The latest UK inflation report shows that consumer prices eased to 2.3% from a year earlier. Yet, despite the sharp drop from March’s Y-o-Y inflation print of 3.2%, the reading was higher than the 2.1% expected. Strong wage growth is keeping services inflation stubbornly higher, notching slightly lower to 5.9% from 6% a month earlier. Core inflation which excludes food and energy costs fell to 3.9% from 4.2% in March. Whilst the latest inflation readings do not impair the Bank of England’s (BOE) ability to cut rates, it does however, push back the timing of cuts to November which markets...

The UK’s Bank of England has voted to keep UK interest rates on hold at 5.25% in May.

The UK’s Bank of England has voted to keep UK interest rates on hold at 5.25% in May. The move came as expected to the market which saw no probability of a cut in May. Whilst we expect to see inflation continuing to trend down in the coming months there remains strength in the UK economy which we feel would delay any rate cuts coming to the UK until the later months of the summer such as August or September. A deterioration in UK economic growth would bring these cuts forward however so the whole market remains on data watch...

March inflation in the UK fell to 3.2% against an expectation of a fall to 3.1% which constitutes a miss.

March inflation in the UK fell to 3.2% against an expectation of a fall to 3.1% which constitutes a miss. The miss largely indicates that inflation is coming down, just not as fast as many were hoping and expecting. The relation to markets is this inflation number feeds into when and by how much the UK cuts its interest rates which consumers rely on to ease the cost of living crisis in some areas. The sticky inflation number will not be good for investors and consumers relying on a falling inflation gauge to help portfolios and household bills.

US inflation came in hotter than expected dashing all hopes of a rate cut in March.

US inflation came in hotter than expected dashing all hopes of a rate cut in March. The latest print showed core CPI (which excludes food and energy) at 3.9%, and headline CPI at 3.1% YoY, topping estimates of 3.7%, and 2.9% respectively. The surprise upshot was driven by increases in food, car insurance, medical care, and shelter, with shelter prices advancing the most. These readings from the US highlight the bumpy road ahead to bring inflation back to target and risks undermining the rosy narrative that markets had been pricing in. A scenario whereby inflation continues to moderate without tipping...

US job vacancies surprises towards the upside, with vacancies reaching 9 million versus estimates of 8.9 million.

US job vacancies surprises towards the upside, with vacancies reaching 9 million versus estimates of 8.9 million. These December figures continue to underscore the strength of the US labour market, retaining hopes that a recession could be avoided. Thus, the rosy scenario where inflation continues on its downward trajectory whilst the economy remains resilient is igniting more optimism that a soft-landing could be in sight. However, the increased job openings will likely usher the Fed further into keeping rates elevated to ensure inflation remains subdued before deciding to cut rates. Another report released Tuesday, showed that US consumer confidence increased...

We saw an uptick in headline inflation from 3.9% to 4% and a steadfast core inflation figure at 5.1%, which excludes volatile food and energy.

We saw an uptick in headline inflation from 3.9% to 4% and a steadfast core inflation figure at 5.1%, which excludes volatile food and energy. Both were above estimates by 0.2%. The BOE believes cuts will happen this year, but they need to see data indicating inflation is under control, while currently it's going in the wrong direction. Upon the stronger than expected inflation print this morning, the market is drawing back bets of early interest rate cuts that were priced in at the end of last year. The most recent numbers are indicating the prediction of slightly stickier inflation,...

The inflation print release today for Europe headline inflation staying at 2.9%.

The inflation print release today for Europe headline inflation staying at 2.9%. This announcement was in line with consensus and demonstrates the difficulty of the final stages in getting inflation back to 2% targets. The European Central Bank President, Christine Lagarde, has signalled that interest rate cuts are more likely to come in summer rather than the market consensus of spring. At the World Economic Forum in Davos, Lagarde reemphasised that they have to keep the rates restrictive until they see signs that inflation is under control. Otherwise, the ECB risks inflation remaining above the 2% target or even climbing...

Labour activity picks up again as US job growth and wage gains surpass expectations.

Labour activity picks up again as US job growth and wage gains surpass expectations. Unfortunately, this dashes all hope for an early interest rate cutting cycle as inflation is likely to remain sticky, and for longer. Nonfarm payrolls rose to 216,000 in December vs an expected 175,000, whilst hourly earnings increased by 0.4% from a month earlier. The unemployment rate held tight at 3.7%. The labour market remains to be key input into the inflationary outlook, and whilst this is a headwind, it also reflects the resilience of the US labour market driven by economic growth and consumer spending. This...