Market Commentary 12th February 2024 – from Charlie Hancock

A Purchasing Managers’ Index (PMI) release for the services sector indicated that the sector expanded at the strongest pace for 8 months in January, with new orders rebounding after a weak end to 2023. The survey data showed that input inflation for service businesses continued to ease.

The Bank of England (BoE)’s chief economist, Huw Pill, stated last week that interest rates could be cut this year as a “reward” for lower inflation, adding that monetary policy is “on a different path” relative to 2023. Pill stated that interest rates are “restrictive” and as a result, the central bank does not need to wait for inflation to get back to 2% before cutting rates.

France’s CAC 40 index outperformed other major indices in the region due to strong performance in heavyweight luxury goods stocks. Both Moet Hennessy Louis Vuitton (LVMH) and Hermes rallied following earnings results for the 4^th quarter of 2023, with the companies’ share prices rising by 3.80% and 7.49% respectively last week.

European Central Bank (ECB) policymakers made comments which appeared to push back against calls for rate cuts in the spring. Isabel Schnabel, who is a member of the central bank’s executive board, stated during a Financial Times interview that disruption to shipping routes in the Red Sea calls for a cautious approach regarding rate cuts. Meanwhile, the ECB’s chief economist stated that more evidence was required before the central bank could be confident that inflation would settle at the 2% target.

A Purchasing Managers’ Index (PMI) for the services sector showed that activity expanded at the fastest pace for four months during January. In contrast to the US manufacturing sector and the services sector in other regions around the globe, US service businesses reported that input costs rose at the strongest pace for nearly a year.

US corporations have generally reported better than expected results so far during earnings season, with around 80% beating expectations. Some sectors have however faced headwinds, with US banks reporting less positive earnings results. The S&P 500 banking sector sub index declined by 0.97% last week.

Authorities in China continued to look at measures to support investor sentiment. The chairman of China’s Securities Regulatory Commission was sacked last week and replaced by the former head of the Shanghai Stock Exchange. Meanwhile, US-China relations appeared to improve, with representatives from the US administration telling officials in Beijing that Treasury Secretary Janet Yellen wants to visit China in 2024.

The International Monetary Fund (IMF) appeared to criticise the Bank of Japan (BOJ)’s monetary policy approach last week. The IMF said that the BoJ should focus on winding down their unconventional monetary policy measures. The comments came despite fresh economic data which pointed to muted inflationary pressures, with annual wage increases coming in at just 1.0%.

The Office for National Statistics (ONS) stated last week that they would be delaying the publication of a new style labour market survey until September. The ONS was due to begin publishing the data again from next month, after pausing the survey results in September 2023. The BoE governor, Andrew Bailey, stated that the uncertainties surrounding the official ONS data were “posing challenges” for the central bank.

Recent comments from the central bank suggest that they will not commit to any interest rate cuts before the release of first quarter wage growth data, with policymakers concerned that strong wage increases could support a re-acceleration in inflation.

GBP / EUR – Current 1.1710 Previous 1.1709

The Pound was largely unchanged against the US Dollar and Euro last week with reduced volatility in foreign exchange markets. The Pound moved 0.02% lower against the Greenback and gained 0.01% against the Eurozone currency.