Market Commentary 2nd April 2024 – from Charlie Hancock

It was a relatively quiet week for UK economic data. Revised figures from the Office for National Statistics (ONS) confirmed the economy entered recession in the final quarter of 2023, with the previous estimate of a 0.3% contraction remaining unchanged. Hopes that the economy may have exited recession during the first quarter have risen in recent weeks amidst improving economic indicators.

A key figure at the Bank of England (BoE), Jonathan Haskel, made some hawkish remarks during a media interview last week, telling the Financial Times that “I think cuts are a long way off”. The comments were at odds with those made by the BoE Governor, Andrew Bailey, during the previous week, with Bailey stating that interest rate cuts were “in play”.

Economic data in Germany pointed to weak growth. Retail sales declined by 1.9% in February, marking the fourth consecutive monthly decline and defying economist expectations for a small increase. A closely watched consumer sentiment indicator improved slightly, but remained close to its record low, suggesting that German consumers remain downbeat about the economic outlook.

An economic sentiment gauge for the broader Eurozone saw an improvement during March, with the European Commission reporting that consumers and retail businesses saw a positive shift in confidence.

Economic data released during the week painted a mixed picture. A closely watched consumer confidence indicator compiled by the Conference Board declined in March, with US households feeling more pessimistic about the economic outlook. Economists were expecting the indicator to see an improvement from February’s level. Meanwhile, a rival consumer sentiment index compiled by the University of Michigan indicated an improvement for the month.

Fresh data on the real estate sector showed that new home sales were weaker than expected in February. Meanwhile, the number of sales for existing homes reached a 1 year high. The average sale price for properties across the US fell to the lowest level seen since early 2022, indicating that higher mortgage interest rates are having a negative impact on property values.

China’s President Xi hosted a meeting with business leaders from the US last week, in an apparent effort to shore up confidence in the Chinese economy and keep relations with US firms stable. Xi reportedly stated that he doesn’t see the need for Washington and Beijing to “decouple” and that he wants American businesses to invest in China. Xi also acknowledged the challenges facing the domestic economy, but said that the Chinese economy hasn’t peaked.

Equity investors appeared to react negatively following an interest rate hike by the Bank of Japan (BoJ) during the previous week, with Japanese equities selling off. The Yen also sold off versus other major currencies, which prompted authorities in Japan to consider some form of intervention to try and stabilise the currency. Meanwhile data showed that weakness in the Yen over the past year appears to have boosted tourism, with the number of tourists visiting Japan rising above pre-pandemic levels.

Hawkish comments from a member of the BoE’s monetary policy committee appeared to have little impact on government bond yields. It is widely expected that the Bank of England (BoE) will begin cutting rates by the summer.

GBP / EUR – Current 1.1697 Previous 1.1655

The Pound gained 0.17% against the US Dollar and 0.36% against the Eurozone currency. Currency traders appeared bullish on the Pound, with hopes that the UK economy will have exited recession during the first quarter of 2024 appearing to support the currency last week.