Market Commentary 11th December 2023 – from Charlie Hancock

The large cap FTSE 100 was weighed on by weakness in Anglo American PLC, with the mining giant’s share price declining by 22% across the week. The fall in the share price came after the company announced they would be closing a copper production plant in Chile and reducing iron ore facilities in South Africa, with cost cutting measures being implemented to try and improve profitability.

UK mortgage lender Halifax reported a slight increase in house prices in November, however, on an annual basis, prices declined by 1%. Further evidence of a slowdown in the property market came via a Purchasing Managers’ Index (PMI) for the construction sector. The data indicated that the downturn in construction accelerated during November, with the sector experiencing its third consecutive month of shrinking activity.

Economic data in Germany came in significantly worse than expected. Industrial production declined for the fifth month in a row during October, with a fall of 0.4% versus estimates for a 0.2% increase. The decline in energy intensive sectors was even more severe than the headline number, with a month-on-month decrease of 1.4%. Labour market data showed the unemployment rate rose from 5.8% in October to 5.9% in November.

There appeared to be a notable shift in the tone from key European Central Bank (ECB) officials last week. The Governor of the Bank of France, Francois Villeroy De Galhau, told reporters that “barring any shock, rate hikes are now over”, whilst signalling that rate cuts could come in 2024 given the speed of disinflation in the Eurozone. Another senior ECB member, Isabel Schnabel, added to the dovish rhetoric, stating that the “remarkable” inflation slowdown makes further rate hikes “rather unlikely”.

Data tracking the number of job openings showed a sharp decline during October, with the number of roles being advertised falling to the lowest level since March 2021. Friday’s payroll report painted a more positive picture, coming in better than expected with the US economy adding 199,000 jobs in November. Some economists noted that 49,000 of the jobs added were government roles and 77,000 further jobs were in healthcare, suggesting that the labour market in other parts of the economy may be looser than the headline number suggests.

A consumer sentiment index compiled by the University of Michigan showed an improvement in consumer confidence for December as concerns about inflation faded. Responses to the University’s survey showed the average expectation for inflation over the coming 12 months is 3.1%, which was down sharply from November’s average inflation expectation of 4.5%.

Ratings agency, Moody’s, cut their outlook for China’s credit rating from “stable” to “negative” last week, citing the prolonged property market downturn. The negative outlook came amidst data which pointed to continued economic weakness. Imports declined by 0.6% in November, defying expectations for a healthy seasonal boost.

Chinese property developer, Evergrande, narrowly avoided a liquidation order, with court proceedings allowing them a further eight weeks to come up with a restructuring plan to satisfy their creditors. Meanwhile, US-China relations appeared to sour, after authorities in Beijing criticised the US Navy for “seriously violating its sovereignty” by sailing a warship in South China Sea waters.

The Bank of Japan (BoJ) appeared to take some investors by surprise last week, with hawkish comments leading some investors to prepare for a rate hike in the coming months. A deputy governor at the central bank said that the Japanese economy could benefit from ultra-loose monetary policy being tightened. The Governor, Kazuo Ueda, made similar remarks, suggesting that “tougher” policy could be introduced in 2024. The comments came as revised data showed that Japan’s economy contracted by more than expected in the third quarter of 2023.

The Bank of England (BoE) published their latest Financial Stability report on Wednesday. The central bank stated that businesses and households are coping with higher interest rates so far, but acknowledged that there are risks ahead.

GBP / EUR – Current 1.1657 Previous 1.1680

The Pound declined by 1.27% against the US Dollar last week, with the US currency clawing back some ground after weakening throughout November. Against the Euro, the Pound was relatively stable (-0.20%).