Market Commentary 27th February 2024 – from Charlie Hancock

A closely watched consumer confidence survey showed a decline in February, bucking the recent trend of improvements. On a more positive note, a composite Purchasing Managers’ Index (PMI), measuring activity across both the services and manufacturing sectors, pointed to growth accelerating during February.

The Bank of England (BoE)’s governor, Andrew Bailey, stated last week that he was comfortable with market predictions for interest rate cuts this year. Bailey added that the bank was not making a prediction regarding when or how much rates would be cut, but said it was not unreasonable for the market to think that rates will be lowered in 2024. Bailey also delivered an upbeat assessment on the prospects for an economic recovery in the coming months.

PMI data for the Eurozone pointed to a continued slowdown in February. Although some member states saw an improvement in activity during the month, contractions in France and Germany weighed on the overall reading for the Eurozone.

The composite PMI for Germany declined for the 8^th consecutive month. The Bundesbank released an updated report which stated that Germany is now likely in recession, with domestic investment and consumer spending both dampened by higher interest rates.

PMI data for the US pointed to continued growth during February, but the pace of increase in business activity slowed from January’s level. The manufacturing sector moved back into expansionary territory after a prolonged period of contractionary conditions, whilst the reading for the services sector came in lower than expected.

Data for the labour market pointed to little change in February, with new unemployment claims and the number of continuing claims remaining steady. Whilst employers in the US have cut back on hiring plans in recent months, layoffs have not significantly increased.

After a run of poor performance for Chinese equities, financial regulators in China banned investors from selling stocks during the first 30 minutes and last 30 minutes during a trading day. Authorities in Beijing also ramped up stimulus efforts last week. A key reference for mortgage rates was cut in an effort to boost sentiment on the housing market, after data showed the number of property sales during the Lunar New Year holiday period declined by 40% versus 2023 levels. Other data showed that activity during the holiday period was weaker than expected, with tourism revenue lower than pre pandemic levels.

Economic data in Japan was mixed. Exports in January were stronger than expected and rose to a record high, pointing to strong global demand. PMI data pointed to a continued slowdown in the manufacturing sector during February, whilst the services sector remained in expansionary territory albeit at a softer pace than the previous month. Meanwhile, the Bank of Japan (BoJ)’s governor, Kazuo Ueda, indicated that he believes that the Japanese economy will continue to see inflationary pressures due to rising wages.

The Gilt market was relatively stable and comments from the BoE governor, which suggested that rate cuts are still likely in 2024, appeared to contribute to yields moving lower.

Official projections for economic growth in Germany were revised significantly lower, with the government now expecting growth in 2024 to be 0.2%, down from 1.3% in the previous forecast.

Labour market data appeared to support calls for the Federal Reserve to remain cautious about rate cuts. Meanwhile, a senior figure at the Federal Reserve, Christopher Waller, stated during a speech that the central bank needs to “verify that the progress on inflation we saw in the last half of 2023 will continue”.

GBP / EUR – Current 1.1712 Previous 1.1692

The Pound moved higher against most major currencies last week, gaining 0.56% against the US Dollar and 0.17% against the Euro.