Weekly Market Update (and Chart of the Week) #2

This week’s market updates spotlight central banks' decisions, economic performance across regions, and notable company earnings, setting the stage for 2024.

Here’s the key takeaways:

• BoE signals rate cuts on the horizon - the monetary policy committee kept bank rates at 5.25%, in line with expectations. Despite a three-way split, new language suggests rate cuts might be on the horizon, with the first 25bp cut likely in May, moving to a likely 75bp reduction by year-end.
• FED maintains rates, eyes data for future cuts – as predicted, the FED maintained rates at 5.25-5.50%, abandoning their tightening stance. However, they emphasised careful assessment of data before any rate adjustments, indicating a potential rate cut in March.
• Mixed economic performance in Europe - the Eurozone’s economy unexpectedly saw no growth at the end of 2023. Despite this, Spain and Italy exceeded expectations, preventing a recession. France stalled, and Germany, the largest economy, contracted slightly by 0.3%.
• IMF optimistic on global growth - the International Monetary Fund boosted its global growth forecast for 2024 to 3.1%, citing robust expansion in the US and Chinese fiscal stimulus. However, concerns remain over the impact of wars and inflation.
• UK companies face profit warnings - last year, 18.2% of UK-listed companies issued profit warnings, the highest since the 2008 financial crisis, according to Ernst & Young. With high borrowing costs and fluctuating confidence cited as reasons. Initially, smaller companies dominated warnings, later expanding to larger businesses. 

What does that mean for me and my clients?

These developments suggest the familiar ‘cautious optimism’ is emerging in the financial landscape, with central banks signalling positive adaptability to economic feedback.

Major market indices finished the week in neutral territory after digesting a lot of macro and central bank news. The S&P 500 hit another record high which quickly reversed on Wednesday, following FED’s update. Alphabet and Microsoft’s results looked strong but fell short of analyst’s lofty expectations. Meta and Amazon, however, were bright spots as earnings beat expectations. In the UK we saw Diageo disappoint with lower-than-expected sales due to falling demand in Latin America. Chinese markets continued to struggle as stimulus measures failed to ‘stop the bleed.’ Oil fell during the week on reports that negotiations had advanced for a ceasefire in the Israel-Hamas war. Yields on both UK Gilts and Treasuries also declined given the softening of central banks tightening bias.

Chart of the week

Source: PIMCO

The charts above show how yields and bond prices respond to the end of a Fed rate hiking cycle. Yields fall significantly (left), and prices rise (right).

Why’s this worth sharing?

Central banks have kept rates on hold again, with commentary pointing to being past the peak in rates, which history shows is favourable for fixed interest and not a time to seek refuge in cash.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.