Market Commentary 29th January 2024 – from Will Binks

Posted by melaniebond
Market Commentary 29th January 2024
Equity Indices
UK
The UK’s FTSE 100 gained 2.32% last week. The mid-cap FTSE 250 gained 2.47% amidst positive sentiment around the globe.

A Purchasing Managers’ Index (PMI) release on Wednesday showed the services sector saw a better-than-expected recovery with improved consumer confidence and lower borrowing costs leading to increased business. The manufacturing sector also saw some improvement, but is still in a recessionary state.

Data released on UK Consumer Confidence by GfK, a German market researcher, showed the third consecutive month of improving sentiment. Analysts suggested that falling mortgage rates and the reduction in national insurance contributed to the improvement.

Europe
All of the major equity indices in Europe posted gains last week with France’s CAC 40 leading the way, ending the week up by 3.56%. The FTSE All-World Index – Europe ex UK rose by 2.91%, Germany’s DAX index moved 2.45% higher, whilst the Swiss Market Index gained 2.15%.

The European Central Bank (ECB) voted to keep its key interest rate at 4.50%. The ECB’s President, Christine Lagarde, told reporters that officials unanimously concurred that it was premature to engage in discussions regarding interest rate cuts.

According to an initial estimate for the Eurozone Purchasing Managers’ Index (PMI), business activity in both the manufacturing and services sectors declined in January. The German economy was disproportionately affected, registering the most substantial decline in business activity since October. Additionally, a closely watched business climate indicator revealed that economic sentiment is at its weakest level since May 2020, following the outbreak of the COVID-19 pandemic.

US
The US equity indices all posted gains last week, albeit more modest when compared to their global counterparts. The S&P 500 gained 1.06%, the Dow Jones Industrial Average rose by 0.65% and the NASDAQ 100 posted an increase of 0.62%.

Gross Domestic Product (GDP) data showed that the US economy expanded by more than expected during the third quarter of 2023, with growth of 4.0% compared to the anticipated 2.0%. The services industry contributed most to the growth, whilst the nation also exported more across the quarter.

Investors paid close attention to a range of data released during the week, including a data release for the Fed’s preferred measure of inflation, the personal consumption expenditure (PCE) index.

Core PCE inflation came in at 2.9% year-on-year during December, however, the month-on-month increase of 0.2% continues to support the expectation for the Federal Reserve to drop interest rates this year.

Asia
The major equity indices in Asia posted mixed results last week. China’s Shanghai Composite Index gained 2.75%, whilst Japan’s Nikkei 225 fell by 0.59%. The FTSE All-World Index – Asia Pacific ended the week 0.76% higher.

The Chinese Shanghai Composite Index has been in negative territory over the past four years and the slumping stock market is becoming a concern to China’s authorities. Policymakers are looking to inject around $280 billion into the market to help stabilise things, but this may not be enough to help the nation’s slowing growth and failing recovery plan.

The Bank of Japan (BoJ) kept monetary policy measures unchanged at their policy meeting, with negative interest rates remaining in place. Japan’s Consumer Price Index rose by 1.60% year-on-year in December, down from 2.4% in November. The release marks the first time Japan’s CPI has been below its 2% target since May 2022 and reduces pressure on the BoJ to raise interest rates.

Bond Yields
UK
The 10-year Gilt yield moved from 3.93% to 3.97%, down from its recent peak of 4.07% as the market awaits the Bank of England (BoE) meeting this week.

Recent data including a deceleration in wage growth supports the argument for an upcoming reduction in interest rates.

Europe
The 10-year German Bund yield fell from 2.34% to 2.25% last week.

The recent data released on the European economy, particularly the weakening of Germany’s economy has increased market expectations for an ECB interest rate cut this year.

US
The 10-year Treasury yield moved up marginally last week, from 4.12% to 4.14%.

Markets continue to assess a range of economic data released over the past week and the likelihood of an interest rate cut in the first half of 2024 remains high.

Currency
GBP / USD – Current 1.2703 Previous 1.2703

GBP / EUR – Current 1.1700 Previous 1.1657

The Pound remained flat against the dollar last week. Against the Euro, the Pound gained 0.37% due to a weak Euro.

Commodities
Gold
Gold declined 0.54% last week with the spot price on Friday at $2,018.59. Gold has been volatile over the past few weeks as investors weigh up the possible future rate cuts against the impact of conflict in the Middle East.
Oil
The Brent Crude spot price jumped 6.49% higher last week, reaching $83.66 per barrel.

Investors are closely watching the conflict in the Middle East. On Friday a Houthi missile strike on a Trafigura fuel tanker in the Red Sea increased fears of further supply disruptions.