Weekly Market Wrap 19/02/24

Both the UK and US released inflation data last week, offering two very different surprises, whilst the UK economy officially fell into a recession. US Treasury yields felt the impact of the CPI release, whilst European industrial production shocked markets.

UK Market  

The UK market ended the week higher. The UK officially entered a recession after the economy shrank in the final quarter of 2023, the second consecutive quarter of no growth. GDP fell by 0.3% in Q4 of 2023, when a decrease of just 0.1% had been forecast. UK inflation data surprised investors, remaining flat in January when an increase had been expected. Core CPI remained at 5.1% when an increase to 5.2% was forecast, whilst headline CPI stayed at 4.0% when an increase to 4.2% was forecast by economists. The slowing of the UK economy and continued low levels of inflation should help build a case for the Bank of England to consider reducing rates, with the first cut in the UK not priced in until August.

US Markets

The S&P 500 ended the week 0.42% lower, whilst the NASDAQ ended the week up 1.54%. US CPI data came in higher than expected this week, with headline inflation falling by less than expected (3.1% vs estimate of 2.9%). Core CPI was flat MoM at 3.9%, when economists had forecast a drop to 3.7%. Whilst higher than expected CPI data has caused markets to reassess rate expectations, the Federal Reserve is expected to deliver its first interest rate cut in June 2024, with a 25 basis point reduction.

European Markets 

The Euro Stoxx 50 ended the week 1.16% higher. Industrial production rose unexpectedly in December, increasing by 2.6% MoM when a fall of 0.2% was expected. This figure was significantly impacted by Irish industrial production which gained by 32.5%. European Central Bank President Christine Lagarde expressed concern over “making a hasty decision” to ease policy in case inflation rebounds, adding to the upward pressure on short-dated bond yields.

Commodities

Brent crude rose by 1.56% as the Middle East remained front and centre with attacks on Rafah and tensions on the Lebanon border.

Fixed Income

Yields on US 10-year bonds rose to 4.29%, rising after higher-than-expected CPI data pushed rate expectations higher.

The Week Ahead

Monday – No major news expected.

Tuesday – Canada CPI

Wednesday – FOMC Minutes

Thursday – US Initial Jobless Claims

Friday – UK Consumer Confidence  

*x% up/down to price as of last week’s close