UK markets were relatively unchanged this week, with the FTSE 100 Index rising by 0.13% to trade at 7,970 points at the time of writing. Official statistics published on Thursday confirmed the UK slipped into a technical recession in the second half of last year.
The Office for National Statistics (ONS) said GDP fell 0.3% quarter on quarter in the last three months of 2023, following a 0.1% fall in the previous period, confirming initial estimates. This means the UK economy entered a technical recession, reflecting the impact of the cost-of-living crisis and high borrowing costs.
However, the detailed figures published by the ONS did show some positive news for consumers. Real household disposable income, the amount available to spend after taking inflation into account, grew 0.7% in the final three months of 2023, after barely growing in the previous three months.
The household savings ratio, the proportion of income that is saved, rose to 10.2% in the final quarter, from 10.1% in the previous three months, and above the long-term average of 7%. It was helped by pension savings and social benefits. Better household finances could help stimulate a recovery in both spending and overall growth. Economists expect the improvement to continue this year as inflation declines and wages rise.
In contrast, the current account deficit widened to 3.9% of GDP in the final three months of 2023, from 3% in the previous quarter, due to a deteriorating trade picture. The deficit includes the UK trade balance and the net income from foreign investment and transfers and is a measure of how much the economy relies on the inflow of foreign money.
Commodity markets
In the commodity markets, Brent crude futures traded around $85 per barrel on Friday, and are set to end the week unchanged, as investors reassessed the latest US crude oil and gasoline inventories data.
Oil prices were under pressure earlier this week after US crude oil and gasoline inventories rose unexpectedly last week, driven by a rise in crude imports and sluggish gasoline demand, according to data from the Energy Information Administration.
However, the crude stock increase was smaller than the build projected by the American Petroleum Institute. Investors also took note of persistent supply-side issues ahead of a meeting by the OPEC Joint Monitoring Ministerial Committee next week.
Gold traded just below $2,200 an ounce on Friday, hovering near all-time highs, as investors await the US core personal consumption expenditure price index report on Friday, to gauge when the Federal Reserve may begin cutting interest rates.
Equity markets
US equity futures were mixed on Thursday, after the major averages rebounded in the previous session, with the S&P 500 closing at an all-time high. In Wednesday’s regular session, the Dow Jones Industrial Average rose 1.22%, the S&P 500 gained 0.86%, while the Nasdaq Composite climbed 0.51%.
Federal Reserve Governor, Christopher Waller, one of the most influential US interest rate setters, said in a speech on Wednesday that the recent rise in month-on-month inflation reinforced his view that there was no rush to lower the central bank’s 5.25% to 5.5% target range. The Federal Reserve announced last week that it is looking to cut rates, after a sharp fall in inflation over the second half of last year. However, the US economy has remained strong, and there are signs that inflation in the dominant services sector is proving stickier than expected.
While Waller acknowledged that the central bank had made a lot of headway in reducing inflation over the past year, he said the readings over the past two months had been ‘disappointing’. He added that ‘in the absence of an unexpected and material deterioration in the economy’, he would need to see ‘at least a couple of months of better inflation data’ before he had enough confidence that inflation could sustainably hit the 2% goal. Waller’s comments led to a rise in the US dollar, which traded at its highest levels in six weeks, as his hawkish remarks supported the currency.
Elsewhere, S&P Global Ratings affirmed its AA+ and A-1+ short term unsolicited sovereign credit ratings on the US on Wednesday, with a stable outlook. S&P stated ‘A diversified and resilient economy, with solid growth, extensive monetary policy flexibility, and benefits associated with the unique status as the issuer of the world’s leading reserve currency underpins the US sovereign rating’.
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