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Markets end the year on a positive note. Optimism that interest rate rises are finally over have boosted stock and bond markets.
US stocks climbed higher on news the US Federal Reserve (Fed) was keeping interest rates unchanged for a third consecutive meeting. The Fed held its benchmark interest rate in a range of 5.25% to 5.50%, the highest in 22 years. Bonds also rallied after the US central bank signalled it could cut rates three times in 2024 if inflation continues to fall.
US inflation edged down to 3.1% in November, as the cost of living crisis in America continues to ease. However, core inflation – which strips out food and energy – remains stubbornly high at 4%. The US economy remains robust in the face of elevated inflation and high borrowing costs, with GDP rising by 5.2% in the third quarter.
US employers added 199,000 jobs in November and unemployment fell, bolstering hopes of a soft landing for the economy, where recession is avoided. The strong labour market has helped boost consumer spending, although some retailers reported weaker sales.
Bank of England holds rates
Stocks rose after the Bank of England held interest rates at a 15-year high for the third time in a row at 5.25% in December. Inflation continued to fall, dropping to 3.9% in November from 4.6% the previous month.
UK wage growth fell from 7.8% to 7.3% in the three months to October, while the number of vacancies fell by 45,000 as the labour market continued to cool. High interest rates and inflation continue to weigh on consumers and businesses, with growth flatlining in the three months to October. The UK economy contracted by 0.3% in October, with services, manufacturing and construction all shrinking.
In November, house prices rose for the second consecutive month, rising 0.5% according to Halifax, suggesting the market is picking up. However, prices are still lower than a year ago and are likely to remain under pressure. There are also signs that mortgage rates are beginning to ease after the highs seen during the summer.
Eurozone inflation slows
European stocks rose, bolstered by optimism that central banks could cut interest rates. Inflation across the eurozone remained at 2.4% in November amid growing concern about the strength of its economies, following the sharpest rise in interest rates since the creation of the euro.
The region’s headline inflation rate has cooled from its peak of 10.6% in October 2022, with inflation in the largest economies, Germany and France, now at 2.3% and 3.4% respectively. With inflation slowing, the European Central Bank (ECB) held interest rates at 4% for the second time in a row.
China is suffering from deflation
China’s deflation situation is worsening, with consumer prices falling 0.5% in November, the sharpest decline in three years. The troubles add to a raft of woes for the world’s second-largest economy, including a property crisis, weak trade data and a slowing recovery from three years of Covid lockdowns. Consumer demand struggled to rebound in 2023, and the 5% annual GDP growth target is the lowest in decades.
Issued by Omnis Investments Limited.
This update reflects Omnis and our investment management firms’ views at the time of writing and is subject to change. The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance should not be considered as a guide to future performance.
The Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC are authorised Investment Companies with Variable Capital. The authorised corporate director of the Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC is Omnis Investments Limited (Registered Address: Auckland House, Lydiard Fields, Swindon SN5 8UB) which is authorised and regulated by the Financial Conduct Authority. — Approved by Omnis Investments on 2 January 2024.
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