UK markets made a positive start to the new year, with the FTSE 100 Index rising by 1.22% this week to trade at 8,250 points at the time of writing.
UK house prices rose more than expected in December, bolstered by buyers rushing to complete deals ahead of an increase in stamp duty in April, according to lender Nationwide. Prices increased by 0.7% compared with November, higher than the 0.1% rise expected by economists, taking the average house price to £269,426, just below the record high set in 2022.
Nationwide said house prices were 4.7% higher in December than a year earlier, the fastest annual pace since October 2022 and exceeding economists’ expectations of a 3.8% increase. Mortgage rates ticked up in November after the budget, reflecting expectations that the Bank of England will lower borrowing costs more slowly than previously forecast. However, borrowing costs remain much lower than their peak in summer 2023. The average quoted two-year fixed rate with a 60% loan to value was 4.39% in November, according to data from the Bank of England. That was up from 4.21% in October but well below the 6.22% reached in July 2023.
UK manufacturing output, new orders and employment fell at faster rates in December, with the S&P Global UK Manufacturing PMI falling to an 11-month low of 47.0, down from 48.0 in November and below earlier estimates of 47.3. The PMI has remained below its neutral mark of 50.0, signalling deterioration in each of the past three months.
The downturn was widespread in nature, with similarly sharp rates of decline across the consumer intermediate and investment goods industries. Lower production volumes mainly reflected subdued domestic market sentiment, customer destocking, efforts to prevent inventory building up at manufacturers’ own warehouses and the impact of weaker demand from European clients. There was also some mention of some UK-based clients scaling back on purchasing in light of the higher cost environment, sometimes linked to restructuring operations in advance of forthcoming rises in labour costs and payroll taxes.
Commodity markets
In the commodity markets, Brent crude futures traded around $76 per barrel on Friday and are set for a weekly rise, on increased optimism regarding China’s economy and fuel demand after a pledge by President Xi Jinping to promote growth.
In his new year address on Tuesday, Xi said that China would implement more proactive policies to promote growth in 2025. China’s factory activity grew in December, a Caixin/S&P Global survey showed on Thursday, but at a slower pace than expected in the face of concerns over how tariffs proposed by US president-elect Donald Trump will affect the trade outlook. The data echoed an official survey released on Tuesday, which showed that China’s manufacturing activity grew only slightly in December. However, services and construction fared better, with the data suggesting that policy stimulus is trickling into some sectors.
Gold prices traded around $2,660 an ounce on Friday and are set for a weekly rise, as investors weigh potential shifts in the US Federal Reserve’s interest rate outlook in the face of President-elect Donald Trump’s proposed tariffs and their likely impact on inflation.
Donald Trump will be sworn in as president of the United States on January 20th. His proposed tariffs and protectionist trade policies are expected to be inflationary and could spark trade wars, adding to gold’s allure as a safe-haven asset.
Equity markets
US equity futures rose on Friday after the major averages extended losses in the first trading session of the new year. In Thursday’s regular session, the Dow Jones Industrial Average fell 0.36%, the S&P 500 lost 0.22%, while the Nasdaq Composite declined 0.16%.
The US Dollar surged to a two-year high against the Euro and an eight-month high against Sterling on Thursday after robust US jobs market data added to investor confidence about the world’s largest economy. The moves reflected investors’ growing belief that resilient US economic growth and lingering inflation would limit how quickly the Federal Reserve cuts interest rates this year, bolstering demand for the Dollar relative to other major currencies.
Data on Thursday showed the number of Americans filing new applications for unemployment benefits dropped to an eight-month low last week, pointing to low layoffs at the end of 2024 and consistent with a healthy labour market. The report from the Labor Department on Thursday added to a recent raft of upbeat economic data, including consumer spending, reinforcing the Federal Reserve’s projections for fewer interest rate cuts this year.
Labour market resilience is keeping the economic expansion on track. Initial claims for state unemployment benefits dropped by 9,000 to a seasonally adjusted 211,000 for the week ended December 28th, the lowest level since April. Economists polled by Reuters had forecast 222,000 claims for the latest week.
Elsewhere the S&P Global US Manufacturing PMI fell to 49.4 in December from 49.7 in the previous month, below initial market expectations of 49.8. The result extended the contractionary momentum for US factory activity for the sixth month in a row, a sharp contrast with the resilient services sector. Output fell at the fastest pace in 18 months due to a drop in new orders, linked to reluctance among clients to commit to new projects ahead of expected policy changes by Donald Trump’s incoming presidential administration in January.
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