Market Commentary 15th April 2024 – from Charlie Hancock

Data from the Office for National Statistics (ONS) showed that the UK economy grew by 0.1% in February, adding to hopes that the UK exited recession during the first quarter. A bounce back in the manufacturing sector, following a contraction in January, was the main contributor for the month’s Gross Domestic Product (GDP) expansion. The construction sector was particularly weak, with output estimated to have fallen by 1.9% during the month.

A monthly report on UK jobs compiled by accountancy giant KPMG pointed to a weakening labour market. The report stated that recruitment activity declined during March, whilst the supply of labour continued to increase. The report also stated that pay growth for permanent staff declined to the lowest level seen since 2021.

Various economic data for Germany was published last week, which generally pointed to weak growth. Exports during February declined by 4.4% year-on-year, with demand for German goods from elsewhere in the Eurozone economy weakening. Insolvencies in March rose by 35% in comparison to March 2023. On a more positive note, industrial production rose by 2.1% in February.

The European Central Bank (ECB) voted to keep interest rates on hold following their policy meeting, however, the central bank signalled that it could implement a rate cut in June. The ECB’s President, Christine Lagarde, stated that if they are confident inflation is reducing in a sustainable manner by June, it would be appropriate to reduce interest rates.

The Consumer Price Index (CPI) rose by 3.5% year-on-year in March, which was broadly in line with expectations. The month-on-month inflation figure of 0.36% was higher than economist estimates, prompting concerns about persistent inflationary pressures in the US economy.

Data for producer price inflation, which measures output prices from producers of goods and services, helped to calm some of the fears around a resurgence in inflation. Prices rose by 0.2% in March, which was less than expected.

US-China relations appeared to deteriorate last week, with President Biden and Japan’s Prime Minister, Fumio Kishida, issuing a joint statement which criticised China. Biden and Kishida stated that China is taking “dangerous and escalatory” actions in the South China Sea. Meanwhile, the US Treasury Secretary, Janet Yellen, threatened to sanction Chinese companies that support Russia’s war in Ukraine. Cash strapped property developers continued to make headlines last week after the state-backed bank, China Construction Bank, filed a liquidation order against developer Shimao Group.

The joint statement issued by Japan’s Prime Minister Kishida and the US President Biden aimed to solidify intentions for the two nations to work together on a host of issues, from Artificial Intelligence (AI) to the supply of Liquified Natural Gas (LNG). With the Japanese Yen continuing to depreciate against most major currencies last week, the governor of the Bank of Japan (BoJ), Kazuo Ueda, stated that the central bank would not hike interest rates in response to currency movements. Japan’s finance ministry stated that they were looking at the factors behind movements in the Yen and they would act if the currency weakened “excessively”.

Data which pointed to the UK economy leaving recession during the first quarter appeared to contribute to yields rising.

The President of the ECB, Christine Lagarde, stated in response to a question about inflation data in the US that the ECB was not dependent on the Fed and that inflation in the Eurozone is “not the same” as inflation in the US.

Comments from officials at the Federal Reserve appeared to contribute to yields moving higher. The head of the Boston Fed, Susan Collins, said that recent inflation data did not support an imminent cut in interest rates. The head of the Richmond Fed stated that Wednesday’s CPI data “did not increase his confidence in disinflation”.

GBP / EUR – Current 1.1699 Previous 1.1661

The Pound fell by 1.47% against the US Dollar last week, with the greenback strengthening amidst geo-political concerns and rising Treasury yields. Against the Euro, the Pound gained 0.33%.