Market Briefing: 16th December

Most share markets were fairly flat last week, with the strong Dollar softening the impact of overseas’ losses for UK investors. Despite the flat returns, there were some encouraging signs within the UK stock market, notably within the consumer goods sector. Markets are likely treading water ahead of the Federal Reserve’s meeting this week. Another interest rate cut (in addition to the 0.75% of rate cuts we’ve already had this year) is likely, but it’s the guidance on future rate path policy that will be the interesting thing for markets. The Federal Reserve will also be releasing an updated version of their Summary of Economic Projections, which is very closely watched by markets.

Last week

• Global stock markets were fairly flat on the week.
• UK shares were modestly down but there was some good performance from the Consumer Goods sector as well as the Oil majors.
• Emerging market shares continued their strong run in December.
• US inflation ticked up to 2.7% but was in line with expectations.
• The European Central Bank cut interest rates to 3%.
• Bond yields rose which made for losses across most bond markets (although credit spreads tightened which offset this impact).

This week

• It’s a week of Central Bank meetings to look forward to!
• The US Federal Reserve conclude their meeting on Wednesday night. We expect them to cut interest rates by 0.25% to 4.5%.
• The Bank of Japan meet on Thursday, where they’re likely to maintain interest rates at 0.25%.
• The Bank of England also meet on Thursday and they’re expected to hold interest rates steady at 4.75%.
• In addition, there’s a fair amount of economic data, with UK employment data out tomorrow and inflation data on Wednesday (with CPI expected to increase to 2.6% according to economists’ surveyed by Bloomberg).

Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.

More detail:

• Global share markets were fairly flat last week, dropping by 0.1%. Emerging market shares (+0.9% on the week) were the stand-out gainer and that very much remains the case for the month-to-date, with the Emerging market index up by 3.8% so far in December.
• UK shares (as per the FTSE All Share index) traded down 0.2% on the week, but there was some good stock performance within the Consumer Goods sector. Diageo rose by 8.1% on the week following 2 separate upgrades from brokers (UBS and Jefferies), whilst Currys rose by 15.65% on the week as it reported earnings above expectations and a return to sales growth. These better numbers from Currys came in spite of CEO Alex Baldock flagging that c£32 million in cost would be added as a result of the recent budget. There was also some strong performance from BP (+4.8%) and Shell (+0.8%) on the back of a rise in the oil price: this gave some ballast to the FTSE 100 given that these 2 companies constitute just shy of 11% of the total index.
• US inflation was the big watchpoint last week ahead of the Federal Reserve’s meeting this Wednesday night (where we expect them to cut interest rates by 0.25% to 4.5%). US inflation came in bang in line with expectations, with CPI running at 2.7% (having been 2.6% in October) and core CPI (which excludes food and energy) staying constant at 3.3%. Whilst the Federal Reserve would much rather see inflation coming down, the fact that it didn’t jump markedly higher still keeps them on track to cut interest rates this week. Moreover, there was a cooling in housing costs (or “shelter” inflation to use the correct term), which is key since this aspect constitutes c35% of the consumer price index. Furthermore, 74% of shelter component is what is known as “owners’ equivalent rent” which is based on estimated data (of what homeowners believe their house would rent for) and this measure continued its decline (which has been the case since March last year).
• The European Central Bank cut interest rates last week, which took policy rates down to 3%. This was the 4^th interest rate cut that they’ve made this year. ECB President Christine Lagarde accompanied this interest rate cut with soothing words and they (the ECB) removed wording from their statement such that they no longer pledged to “keep policy rates sufficiently restrictive for as long as necessary” to bring down inflation. This suggests that they are more concerned about igniting growth (via cutting interest rates) than they are rising inflation (which would argue for higher interest rates).
• Bond yields rose on the week which saw UK gilts sell off by about 0.9%, with UK 10-year government bond yields closing the week at 4.41%. Credit spreads continued to grind tighter which made for slightly better returns from investment grade and high yield markets.

The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.

The content of this article is not intended to be or does not constitute investment research as defined by the Financial Conduct Authority. The content should also not be relied upon when making investment decisions, and at no point should the information be treated as specific advice. The article has no regard for the specific investment objectives, financial situation or needs of any specific client, person, or entity.