Market Update – 20th December 2023.

Source: ONS

On Tuesday, the most recent inflation data for Europe revealed a decline in the Consumer Price Index (CPI) to 2.4% on year in November 2023, down from October’s 2.9%, aligning with expectations. Core inflation, which excludes more volatile measures, came in at 3.6%, in line with estimates, down from 4.2% in the previous month.

Boosting market sentiment today, the UK Consumer Price Index dropped to its lowest figure in 2 years on Wednesday, coming in at 3.9% in comparison to 4.6% last month. The reading also surpassed market expectations of a drop to 4%. It was said that the decrease was in large part due to the recent decrease in fuel prices and food price inflation. The core inflation figure also came in below expectations at 5.1%. The news comes on the heels of the recent Bank of England (BoE) interest rate decision last week, where they opted to leave rates unchanged at 5.25%. Despite the rapid falling of the figure – something we have been anticipating for some time now – the BoE have maintained that policy will remain in restrictive territory until inflation edges down to their 2% target.

The European Central Bank (ECB) is now close to the 2% target, in part thanks to continued falls in energy prices which experienced an 11.5% decrease compared to November 2022. This data follows the ECB’s recent decision to keep interest rates unchanged at their meeting last week, fuelling speculation that policymakers might consider rate cuts in Q2 next year.

There are signs of weaker growth across the region with GDP contracting by 0.1% in the 3 months to September 2023 and the European Commission has revised its growth forecast lowering it from 1.1% to 0.8% in 2023 and from 1.6% to 1.3% in 2024. Despite this, Christine Lagarde, President of the ECB, cautioned that the fight against inflation is ongoing and policymakers maintain their data dependency.

In Japan, the central bank maintained its ultra-loose monetary policy, a widely anticipated move. The central bank opted to wait for more evidence on whether wages and prices would rise sufficiently to justify moving away from significant monetary stimulus. Bank of Japan (BoJ) Governor Kazuo Ueda noted positive signals from labour unions and big firms, indicating a potential for sustained wage growth in 2024. Following the BoJ’s decision, the yen depreciated, and Japanese stocks rose.

Still to come this week we have final GDP figures for the US and UK for Q3, Japanese inflation and UK retail sales and current account. In the US we have PCE and durable goods orders.

As the year draws to a close, economic data and news tends to quieten, consequently, our next scheduled update will be Tuesday 2 January 2024; although we will still be working and managing your investments over the Christmas period and of course will provide a market update should any major market moving events occur. Finally, we would like to wish you and your family a very Merry Christmas and a happy New Year.

Nicola Tune, Portfolio Specialist