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Please see below today’s ‘Daily Investment Bulletin’ from Brooks Macdonald, which was received this morning – 29/02/2024:

What has happened

Both Equity markets and Bond markets were relatively quiet yesterday, with the focus being on the  US inflation data due to be released later today. It was also a relatively light day in terms of data releases with the main data being the very modest downgrade to US GDP growth in Q4, with the second estimate coming in at an annualised +3.2% (vs. +3.3% first estimate).

Markets very much focussing on the PCE Inflation release today

Recent US CPI and PPI data releases have surprised marginally to the upside, and some of the components of these that filter into the Fed’s preferred measure of inflation mean expectations exist for a slight increase for today’s data. Bloomberg states survey data showing a month on month increase of 0.4% for Core PCE. This would be the largest monthly increase since Feb of last year. Ahead of this data, we have seen expectations of rates cut from the Fed being pared back and comments yesterday from a couple of Fed members alluded to the higher for longer approach. Boston Fed President Collins said that it “will likely become appropriate to begin easing policy later this year”, but also that “I want to see more evidence of a sustained trajectory to price stability”. Separately, New York Fed President Williams said that they still had “a ways to go on the journey to sustained 2% inflation”.

What does Brooks Macdonald think

Coming into 2024 at our January AA meeting we felt markets were probably over-pricing Fed easing and during the first 2 months this has been reflected in a shift to a more realistic pricing for the trajectory for US interest rates. Whilst we do believe we have likely seen peak rates in the US, we remain cognisant the path to target inflation may be bumpy and not in a straight line. As such, and along with a resilient economy (despite the small revision to q4 GDP),  there remains scope for periods where inflation may surprise to the upside, but these should not derail the view that the next move from the Fed will be to lower headline rates.

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Carl Mitchell – DipPFS

Independent Financial Adviser

29/02/2024