WeeklyWatch – Markets face a rocky start to 2024 amid global economic headwinds

9th January 2024

Stock Take

­When will interest rates finally decline?

2023 ended with a bang for global stock markets, but 2024 started with more of a whimper and faced a generally negative week.

With growing confidence that interest rates had, for the most part, peaked, markets finished 2023 strongly. As inflation continued to decline from its previous highs, the US Federal Reserve, the European Central Bank and the Bank of England all ceased raising interest rates during the second half of the year. A lot of people started to wonder when interest rates might start to decline, and 2024 was one possible answer.

But markets can be fickle, and 2024 has already shown signs of being anything but an easy ride.

Portfolio Manager at TwentyFour Asset Management, George Curtis, noted:

“Ultimately, with developed market central banks poised to pull the cutting trigger, the market will continue to remain laser-focused on any data that will guide towards that first cut.”

Declining global supply and increasing inflation

Numerous geopolitical threats from 2023 still exist on a global scale. Houthi rebels from Yemen began attacking foreign ships in the Red Sea towards the end of last year, which led to some businesses rerouting their cargo away from the area onto perhaps longer and more costly routes. This reduces supply, which might lead to inflation.

A warning has already been issued stating that concerns about inflation are still present. It was disclosed last week that in December 2023, the eurozone’s inflation rate went up. In December, prices grew by 2.9%, up from 2.4% in November. This put an end to the region’s six months of nonstop falls.

But looking beyond the headline figures offered some cause for optimism. One of the key reasons for the inflation surge was a reduction in government fuel subsidies. In fact, inflation decreased from 3.6% to 3.4% over the same period when the more volatile fuel and food costs were taken out of the equation.

Later this month, the European Central Bank is set to meet to deliberate on monetary policy.

Improving US jobs sector could halt rate cuts

The US will announce its December inflation data this coming week. Economists and investors will be eager to analyse the statistics and study any remarks made by the Federal Reserve to see what they think about interest rates.

The US jobs figures for December outperformed projections, with 216,000 new jobs created. This was far more powerful than anticipated. But for investors, it was regrettably a case of “good news is bad news”. High employment and a robust US economy give the Federal Reserve greater leeway in deciding what to do about interest rates, which lessens the pressure to cut rates too soon.

Highlighting some of these risks, Chief Investment Officer at BlueBay, Mark Dowding, noted:

“When assessing market projections for rate cuts as early as March this year, we see plenty of room for disappointment from the Federal Reserve, European Central Bank and Bank of England. In the US, the economy continues to grow at a healthy pace, and with the housing market activity being stimulated by the recent decline in mortgage rates, we don’t think that the Federal Open Market Committee will be in a hurry to cut rates.

“Meanwhile, we won’t be surprised if inflation data during Q1 proves more durable than many have been expecting. Market participants have been quick to dismiss inflation risks, as headline CPI has declined, yet core inflation remains well above levels compatible with central bank targets.”

A tough trading week to start 2024

Because of all of this, the first trading week of 2024 was difficult. In the US, the S&P 500 fell 1.5%, while the technology-heavy NASDAQ Index fell 3.3%.

The MSCI Europe ex UK and FTSE 100 indexes in Europe fell by 0.7% and 0.6%, respectively. After rising for seven weeks in a row, European shares were stopped in their tracts last week due to increased confidence about future rate cuts by central banks.

Wealth Check

The new year is the perfect opportunity to make a fresh start and reset your financial habits. Here are our top five resolutions to help you achieve financial well-being in 2024.

  1. Determine your actual worth

Figuring out how much you’re really worth can be surprisingly comforting. Add up all of your resources, then consider if they are all contributing enough towards your goals.

  1. Reduce your debt

Knowing your worth is important, but understanding your debts is even more vital. You will then be able to tell when normal debts turn into problematic debts.

This is a component of ‘cashflow modelling’, which provides you with a precise overview of all of your revenue and expenses. You can check how much you really spend on food each month or whether you’re still paying for subscriptions you thought you had cancelled.

If your finances are in better shape, you could consider paying off a larger, longer-term loan, like your mortgage. The amount of interest you may save by making an extra £100 monthly payment is rather substantial.

  1. Continue to use your tax benefits

Are you utilising all of your tax benefits to minimise your tax liability? Be aware that tax laws are subject to change and that some, like ‘carry forward’, might be intricate. Therefore, it’s wise to consult your adviser if you have questions about the best strategies to save, invest or gift money.

  1. Stay on course with your retirement plans

When you’re busy managing the family budget, retirement may feel far off. So don’t allow your own long-term goals to fall to the wayside this year. The time to begin retirement savings is always now.

Keep an eye on your pension; if you’re not already enrolled in your workplace pension scheme, do so.

  1. Create a Will and Power of Attorney

Although it might not be at the top of your list of things to accomplish this year, creating a Will is one of the most crucial financial planning tasks you will ever do for the future of your family.

Making a Will or establishing a Power of Attorney is simple and straightforward. We’re happy to help you and ease any concerns.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Please note that Will writing and Powers of Attorney involve the referral to a service which is separate and distinct to those offered by St. James’s Place and they are not regulated by the Financial Conduct Authority.

In The Picture

Across Western economies, especially the US, unemployment is still relatively low, despite recent economic challenges.

Sources: ONS, US Bureau of Labor Statistics, Eurostat. Data as at December 2023

The Last Word

“Since the beginning of this year, Japan has been hit by a series of tragic earthquakes and accidents. I hope the bright news of winning an award can bring a smile to everyone’s face, even if only a little.”

– Studio Ghibli producer Toshio Suzuki speaking after ‘The Boy and the Heron’ won the Golden Globe for Best Animated Film.

BlueBay and TwentyFour are fund managers for St. James’s Place.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

SJP approved 08/01/2024