Market Update – 4th January 2024.

5th January 2024

Markets cooled slightly at the start of the short trading week following a strong end to 2023, with a raft of PMI data from major global regions then giving investors food for thought as they push on into the new trading year.

On Wednesday, the Caixin PMI manufacturing figure for the Chinese economy came in for December at 50.8. The data illustrates a marginal rise from 50.7 in November, surpassing expectations. A PMI reading above 50 indicates an expansion, while anything below indicates a contraction. Whilst the Caixin survey somewhat contradicts the ‘official’ PMI figure released (which was 49 down from 49.4 in November), the survey arguably provides a more representative look at productivity amongst smaller and medium sized companies in the private sector – providing further evidence for investors of the success of the government’s monetary stimulus packages.

In the UK, December’s Manufacturing PMI reading came in at a seasonally adjusted 46.2 in comparison to the initial flash estimate of 46.4 and below November’s reading. Having faced some tough conditions in export and domestic markets in 2023, the industry experienced a retreat in production volumes, as well as tighter manufacturing inventories as businesses remained cautious amidst a higher interest rate environment and sticky inflation driving input costs. There is hope that production will increase throughout 2024, thanks to new product launches and the potential policy normalisation we may be seeing following the Bank of England recurrent pauses in rate hikes at their last few meetings.

Over in Ireland, productivity in the services sector also moderated to 53.2 in December from 54.2 in November.

Yesterday, the Fed’s meeting minutes were released from the last meeting in December where they agreed to keep rates within the 5.25-5.5% range. They showed that members believe interest rate cuts are perhaps on the cards in 2024, although gave little information by way of a timeframe. The theme of the meeting appeared to centre on increasing confidence that the Fed are winning their battle with inflation, and an acknowledgement that will be welcome news to the American people: that the committee are fully aware of the potential effects of an elongated restrictive policy on the economy. Their previous dovish comments detailing their aim for three quarter-percentage point reductions in 2024 however, were tempered by the cautious and uncertain approach to the exact path this year’s monetary policy will take.

Still to come this week we have the US’ unemployment rate, participation rate and non-farm payrolls and Eurozone inflation.

Nicola Tune, Portfolio Specialist