Please see below, Brooks Macdonald’s ‘Daily Investment Bulletin’ which covers the key factors currently affecting global markets. Received this morning – 16/02/2024
What has happened?
Yesterday’s US retail sales delivered a surprising contrast to economic narrative. The report for January indicated a bigger than expected decline in retail sales, with a 0.8% m-o-m decrease (vs consensus 0.1% drop). Factors such as seasonal adjustments and inclement weather in January may have contributed to this weakness. Additionally, revisions to the data from the previous two months prompted some analysts to revise their Q4 GDP projections downward, signalling a potential deceleration in growth as we move into early 2024. Despite these conflicting messages, market sentiment remained positive, with the S&P 500 rising by 0.58% to close at a new record high, and the small mid cap Russell 2000 index climbing 2.45%, reaching its highest point this year, just two days after experiencing its most significant decline since June 2023.
UK already on the road to recovery?
In the UK, retail sales experienced a robust recovery in January, posting a 3.4% month-on-month surge, which exceeded consensus expectations. The Office for National Statistics (ONS) noted that this was the most substantial monthly increase since April 2021. Y-o-y, sales saw a modest 0.7% increase, which stands in stark contrast to the forecasted 1.4% decrease and the previous 2.4% decline. This data lends support to the analysis and the Bank of England’s (BoE) projections that the UK economy is on the mend from the recession experienced last year, which was confirmed by contraction in GDP figures released earlier in the week.
What does Brooks Macdonald think?
Although individual economic indicators could sometimes provide insights into the economy’s underlying strength, they can often be clouded by extraneous fluctuations such as seasonality. The Federal Reserve’s primary gauge in assessing the disinflationary trajectory is the Personal Consumption Expenditures (PCE) inflation. The forthcoming release of the US Producer Price Index (PPI) later today is poised to be especially telling. This PPI report is anticipated to shed light on key aspects of PCE inflation, particularly in healthcare, air travel, and portfolio management services.
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Alex Kitteringham
16th February 2024