UK markets were volatile this week as several key pieces of UK economic data were released.
Annual inflation data saw the month-on-month rate of inflation rise to 4% vs expectations of a fall of 3.8%. It is the first inflationary increase in nearly 10 months and resulted in a sharp sell-off in equities with the FTSE 100 falling over 1.5% on the date of release.
Contrary to this, sales data released on Friday buoyed markets to a degree. Retail sales in the UK fell by 3.2% in December 2023, the largest drop in over three years, following a revised 1.4% increase in the month prior and exceeding an expected fall of 0.5%. Expectations have now grown for an interest rate cut from the Bank of England by June 2024, as concerns of an economic slowdown in the UK begin to rise.
The FTSE 100 is expected to close the week down 1% to trade around 7,500, marking the third consecutive week of decline.
Commodity markets
Gold is set for a weekly decline to trade around $2,020 an ounce on Friday. This comes as Treasury yields and the US Dollar rallied after the Federal Reserve tempered expectations for any interest rate cuts and positive jobless claims data showed an unexpected decline on Thursday to 187k, the lowest level since September 2023.
Markets are now pricing in a 57% chance of a Federal Reserve rate cut in March, down from 75% a week ago, according to the CME FedWatch Tool. The European Central Bank also reiterated it is too soon to discuss policy easing according to the minutes of its last meeting.
Brent Crude is set to end the week higher and hold the recent advance, to trade around $79 per barrel. Continuing conflict in the Middle East has been the main contributor to this rising oil price. In addition, Brent Crude inventories in the US have fallen more than expected, whilst the International Energy Agency revised 2024 oil demand growth expectations up by 180,000 barrels per day, further contributing to Brent’s rise in price.
Equity markets
Stock futures in the US on Friday highlighted gains had been maintained following a technology-led rally in the previous session.
At the time of writing, the Dow Jones trades at 37,468, the S&P 500 trades at 4,780.94, and the Nasdaq 100 at 16,982.29. US-listed Taiwan Semiconductor Manufacturing Company led the gains in the NASDAQ, surging 9.8%, whilst other chip making firms gained elsewhere, including Nvidia (1.9%) and AMD (1.6%). Yields on the benchmark 10-year US Treasury note settled to 4.142%, with bets on a US March interest rate cut now somewhat less likely.
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