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Please see the below article from Brooks Macdonald detailing their thoughts on the latest economic data. Received this morning 14/01/2025.

What has happened

Markets have seen a small reprieve from inflation nerves overnight, with Bloomberg reporting that the incoming US Trump-administration is considering a slower ramp-up in international trade tariffs, rather than a ‘one-and-done’ increase. While thought to be better at helping Trump and his team in negotiating global trade concessions, markets have taken it as a potential sign of a slighter softer trade tariff outlook – following this thinking through, with hopes of less tariff pressure and less inflation risk, the US dollar has edged lower overnight while equity futures are up currently.

UK prime minister has “full confidence” in Chancellor Reeves

Monday saw continued pressure on sterling and Gilt bond yields. As the government tried to shore up sentiment, prime minister Starmer announced yesterday that he has “full confidence” in Chancellor Reeves. With the recent jump in borrowing costs eroding most if not all of the financial cushion against her fiscal rules according to some estimates, the risk is that Chancellor will be forced into cutting public spending and/or raising taxes – the next scheduled fiscal update, the Chancellor’s Spring forecast, is due to be held on 26 March.

Rising oil prices add to inflationary concerns

Brent crude oil prices yesterday briefly tipped above US$81 per barrel intraday, reaching their highest levels since August last year. The catalyst was a new round of US sanctions announced at the end of last week, targeting Russian oil revenues – in the crosshairs were Russian oil producers Gazprom Neft and Surgutneftegas as well as Russia’s shadow-fleet of vessels for shipping Russian oil principally to India and China. Investors were left to weigh up the fall-out, with the risk of higher oil prices ahead adding to broader inflation worries in financial markets.

What does Brooks Macdonald think

Tomorrow, we have two sets of consumer inflation data due: US and UK Consumer Price Index (CPI) readings, both for December. For the US, annual core CPI (excluding energy and food prices) inflation was running at +3.3% in November, and for the UK it was higher at +3.5%, both still stubbornly above US and UK central bank inflation targets of 2%. Should this week’s inflation data show a hotter number, that would heap pressure on an already nervous bond market.

Bloomberg as at 14/01/2025. TR denotes Net Total Return.

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Alex Clare

14/01/2025