Market Commentary 16th December 2024 – from Charlie Hancock

The Office for National Statistics (ONS) reported that the UK economy shrank in October, with Gross Domestic Product (GDP) falling by 0.1%. The ONS cited the chancellor’s budget as a factor which may have impacted the data. Activity was weak across major sectors of the economy, with manufacturing, services and construction all experiencing declining output. Industrial production declined by 0.6% in October, which defied economist estimates for a 0.3% increase.

The week’s economic data prompted expectations for lower economic growth across the 2024 calendar year. The investment banking giant, Goldman Sachs, cut their 2024 UK growth estimate from 1.2% to 1.0%.

Concerns around political instability in France faded slightly last week after President Emmanuel Macron appointed the former justice minister, François Bayrou, as the Prime Minister. Bayrou is expected to pursue relatively centrist policies, although he has expressed concern about the level of deficit spending and the nation’s debt levels.

The European Central Bank (ECB) cut interest rates for the fourth time this year, lowering their key deposit rate by 0.25% to 3.00%. The ECB hinted that rates may be cut further in the coming months, whilst lowering their estimates for growth and inflation in the Eurozone. The Swiss National Bank (SNB) also cut rates last week, with a bigger than expected 0.5% reduction. The SNB expects the Swiss economy to experience inflation of just 0.3% in 2025.

Investors paid close attention to US inflation data, which showed that consumer prices rose by 2.7% year-on-year in November, accelerating from the 2.6% recorded for October. The core rate of inflation, which excludes food and energy prices, came in at 3.3% year-on-year. The data appeared to prompt rising expectations for fewer than previously expected rate cuts in the coming months.

Labour market data showed that weekly jobless claims increased by more than expected, whilst the number of continuing claims also increased. The data suggested that the US labour market has continued to weaken slightly this month following an increase in the unemployment rate in November.

China hosted their key annual economic conference last week, where senior government officials outlined policy measures for the next year. The government pledged to implement more fiscal support by running a larger deficit in 2025. Meanwhile, data for inflation in November showed that the economy remained in deflationary territory. Consumer price inflation eased to 0.2% year-on-year in November, which was significantly weaker than the median economist estimate of 0.5%. The Producer Price Index (PPI), which measures output costs from producers of goods and services, declined by 2.5% year-on-year.

Revised economic data for Japan showed that the economy expanded by more than previously estimated during the third quarter, with GDP growing by 0.3%. A sentiment survey conducted by the Bank of Japan (BoJ) also showed that manufacturing firms reported an improving outlook in the fourth quarter. The data contributed to expectations that the BoJ will keep interest rates unchanged at their upcoming December policy meeting.

GBP / EUR – Current 1.2018 Previous 1.2060

Sentiment amongst currency traders on the Pound appeared to be dented by the week’s UK economic data, with the Pound declining by 0.98% against the US Dollar and 0.35% against the Eurozone currency.