Week ending 12th January 2024.

Despite a slight uptick in the headline rate of inflation in December 2023, US markets closed higher this week. The Consumer Price Index (CPI) rose to 3.4% year-on-year, surpassing November’s 5-month low of 3.1% and slightly exceeding the forecasted 3.2%. Stubbornly high shelter costs were the major contributor, accounting for two-thirds of the increase.

Core CPI, excluding fuel and food, climbed to 3.9%, with motor-vehicle insurance costs surging over 20%. Despite this, the US market’s reaction remained muted as the report failed to undermine the argument for Fed rate cuts in March. Additionally, Producer Price Index (PPI) data revealed a 0.1% decline in wholesale inflation from November to December, signalling easing price pressures while emphasizing the challenges policymakers face in reaching the 2% target.

US banks kicked off earnings season, reporting a decline in fourth-quarter net income. However, JPMorgan, Wells Fargo, Bank of America, and Citigroup struck an optimistic tone, emphasizing consumer resilience in the economy.

In China, December 2023 data indicated a decline in consumer prices, fuelling expectations of a central bank rate cut. China’s export data exceeded expectations, rising by 2.3% in December, showcasing resilience despite overall trade decline in 2023.

The UK economy exceeded expectations in November 2023, growing by 0.3% month-on-month, recovering from the previous month’s 0.3% decline and surpassing the market’s anticipated 0.2% increase. Despite positive momentum, concerns linger about overall economic growth, potentially leading to a shallow recession if December witnesses a contraction or stagnant output, as warned by the Office for National Statistics (ONS).

The government’s Office for Budget Responsibility (OBR) projects weak growth of 0.6% for 2023 and 0.7% for 2024. The potential for growth recovery exists if inflation continues to fall towards the 2% target, prompting policymakers to consider cutting borrowing rates.

Over in Ireland, data revealed industrial production fell by 29.5% in November, up from 31.6% in the previous month, whilst retail sales ticked up by 0.8% on year over the same month. The Irish labour market cooled towards the end of 2023 and the unemployment rate rose to 4.9% in December, which was greater than expectations of 4.7% due to a fall in job postings.

Turning our attention to the upcoming week, US markets are closed on Monday 15^th January for Martin Luther King Day. The World Economic Forum in Davos kicks off on the same day – attendees are looking to address artificial intelligence (AI) and global stability concerns. Goldman Sachs and Morgan Stanley continue big financial institution earnings.

In the US, Congress faces a partial government shutdown deadline on Friday (19^th) and we anticipate updates on the Eurozone balance of trade and industrial production. Additionally, key indicators for the UK will be released; including the unemployment rate, average earnings, retail sales, and the latest CPI report. China is also set to unveil data on GDP, industrial production, and retail figures.

Kate Mimnagh, Portfolio Economist

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