A MIXED WEEK FOR MARKETS

This week Andrew Bailey, Governor of the Bank of England, declared that Britain has “turned a corner” in its efforts to reduce inflation, but warned that a recession is still on the cards this year.  The Governor said the UK was braced for a “long, but shallow” downturn in contrast to eurozone economies which this week signaled that they will likely avoid falling into recession. Last year it seemed inevitable that the UK recession would be long and deep, so long and shallow is a far more positive outlook, and the news from the Eurozone is equally welcome for markets and the global economy as whole.

In the US, the employment continues to look healthy which suggests that a recession does not seem imminent. That said, there are some 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 for the time being.

Elsewhere, the reopening of the Chinese economy continues to gather momentum. The sudden increase in global supply and the healthy consumer demand we saw after our own reopening is set to stimulate a Chinese economy that has been struggling with a deflating property bubble. As China is such a key part of the global economy its revival could well be the catalyst for the change elsewhere that we hope for.

 

  US: MARKETS RATTLED BY MOST RECENT DATA

US equities started the week well, fell back somewhat and are having a good finish to the week following 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.

  UK: CONSUMER PRICE INDEX (CPI) FALLS SLIGHTLY AS FUEL PRICES FALL

UK inflation fell slightly 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. If you need advice on asset and wealth management, our professional team are on hand to help.

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: HOPES OF A RETURN TO GROWTH AS ECONOMY REOPENS

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.

 

Please note that the opinions expressed in this newsletter are those of the author, and they do not purport to reflect the opinions or views of Private Office Asset management and should not be construed as advice.

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Yours sincerely,

 

Phil Simmonds
Philip A. Simmonds MBA, LL.B(Hons), FPFS, Chartered MCSI

Chartered Wealth Manager | Chartered Financial Planner

Solicitor (company in-house solicitor)

Chief Investment Officer | Head of Strategy

 

E : phil.simmonds@private-office.co.uk

      phil.simmonds@private-office.law (for legal matters)