Market Commentary 4th March 2024 – from Charlie Hancock

Last week saw a flurry of headlines regarding changes proposed by the UK Chancellor, Jeremy Hunt, ahead of his spring budget. Reports stated that Mr Hunt intends to force UK pension funds to publish data showing their allocation to UK equities, with the chancellor seeking to encourage investment in UK firms. Hunt stated that British pension funds “appear to contribute less to the UK economy than international counterparts do, as they invest less in our domestic businesses”.

Mortgage lender Nationwide reported that the average UK house price rose by 1.2% in the year to February, with activity in the housing market seeing a slight rebound as mortgage rates fell. The year-on-year increase was the first since January 2023. Data from the Bank of England (BoE) showed that the number of mortgage approvals rose in January, however, they remained significantly below the pre covid average.

Investors paid close attention to Eurozone inflation data released on Friday. Inflation during February was slightly higher than expected, with the Consumer Price Index (CPI) rising by 2.6% year-on-year. Food prices and services costs were the main contributors during the month, whilst energy prices continued to see a year-on-year decline.

An economic sentiment index compiled by the European Commission showed an unexpected decline in February, with businesses less confident about the outlook in the coming months. The economic indicator showed that confidence in the industrial sector was broadly unchanged, but the services sector reported a relatively sharp drop in demand. Expectations for price rises in the services sector declined for the first time in 5 months, which helped to alleviate some concerns about a re-acceleration in inflation.

US economic data painted a mixed picture. A manufacturing Purchasing Managers’ Index (PMI) indicated that the sector shrank during February, with the pace of decline worse than January’s reading. Meanwhile, the closely watched Consumer Sentiment Index compiled by the University of Michigan came in much weaker than expected for February, with sentiment declining from January’s reading.

The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) index, saw a year on year increase of 2.8% in January, which was in line with economist estimates. Expectations for interest rate cuts were broadly unchanged following the release of the data, with futures markets currently anticipating the Federal Reserve will begin cutting interest rates in June.

Regulators in China continued to implement measures in response to the recent volatility in Chinese equities. Authorities reportedly told hedge funds to phase out certain types of investment products which they believe contributed to the recent stock market decline in China. Economic data pointed to continued weakness, with property sale volumes seeing a 60% decline in February versus the same period in 2023. The slump in real estate activity continues to weigh on China’s biggest developers and last week saw creditors apply to have developer Country Garden liquidated. The company is facing increasing pressure to re-structure their debt pile following missed repayments.

Economic data in Japan pointed to continued weakness in the manufacturing sector, however, the services sector saw improvements during February. Investors appeared to scale back expectations for policy changes by the Bank of Japan (BoJ). The central bank’s governor, Kazuo Ueda, said that they don’t yet have conclusive evidence that inflation will sustainability meet their 2% target.

GBP / EUR – Current 1.1675 Previous 1.1712

The Pound moved slightly lower against the US Dollar (-0.13%). There were no obvious drivers for the Pound’s movement against the Euro (-0.32%), with the Euro gradually appreciating across the week.