UK markets declined this week, with the FTSE 100 Index falling 0.9% to trade at 7,660 points at the time of writing.
UK food inflation eased to its lowest rate since June 2022, according to data from the British Retail Consortium, which announced that annual food inflation decelerated to 6.7% in December, down from 7.8% in November, marking the lowest level in 18 months.
The data will raise hopes that the squeeze on household finances from elevated price growth is coming to an end. Global food prices have been rising in recent years, spurred by the war in Ukraine, which has disrupted supply chains and led to higher grocery bills, hitting the poorest hardest.
The UK economy had a better-than-expected end to 2023, according to closely watched indicators that showed a strong improvement in services activity and a rebound in mortgage approvals. The final S&P Global UK services PMI business activity index rose to 53.4 in December, up from 50.9 in November, and well above the 52.7 figure in previous flash estimates.
Net mortgage approvals for house purchases rose to 50,100 in November from 47,900 in October, according to the Bank of England. The figure was higher than the 48,500 forecast by economists polled by Reuters. UK House prices rose for their third consecutive month in December, increasing by 1.1%, according to mortgage provider Halifax.
Bank of England data also showed a strong growth in consumer credit, which rose to £2.0 billion in November, up from £1.4 billion in the previous month, and a drop in the inflation rate expected by businesses for the year ahead. The figures imply a rebound in UK domestic demand in December, and helped alleviate fears that the UK economy could contract in the final three months of 2023, after a 0.1% fall in the third quarter and a 0.3% month-on-month decline in October.
Commodity markets
In the commodity markets, Brent crude futures traded around $78 per barrel on Friday, and are set to end the week higher, as investors weighed signs of weakening US demand against supply disruptions in Libya.
Also adding to supply concerns were developments in the Middle East, where Israeli forces are planning a more targeted approach in the north and further pursuit of Hamas leaders in the south, its defence minister said on Thursday. Aiming to help prevent the conflict from expanding, US secretary of State Antony Blinken was set to travel to the Middle East on Thursday for a week of diplomacy, the state Department said.
Gold prices traded around $2,040 an ounce on Friday and are set for a weekly decline, as reduced bets of an early interest rate cut in the US boosted the dollar and bond yields.
Equity markets
US equity futures fell on Friday as investors look ahead to a key monthly jobs report that could offer clues on how soon the Federal Reserve can ease monetary policy. In Thursday’s regular session, the Dow Jones Industrial Average gained 0.03%, the S&P 500 fell 0.34%, while the Nasdaq Composite lost 0.56%.
US stocks retreated from their December highs as investors began to doubt that the Federal Reserve is ready to begin cutting interest rates as early as March. While officials expressed optimism that the US central bank was calming inflation, they were also careful not to commit to any immediate loosening of monetary policy, according to a record of the December meeting published on Wednesday.
The minutes showed that rate setters reaffirmed it would be appropriate for policy to remain at a restrictive stance for some time, until inflation was clearly moving down sustainably towards the Federal Open Market Committee’s 2% target. While officials still viewed rates as likely at or near their peak, they also saw an unusually elevated degree of uncertainty in this year’s economic outlook.
The number of Americans filing new claims for unemployment benefits fell more than expected last week, suggesting labour market conditions remain tight, even as demand for workers is easing. Initial claims for state unemployment benefits dropped 18,000 to a seasonally adjusted 202,000 for the week ended December 30th, the lowest level since mid-October. Economists polled by Reuters had forecast 216,000 claims for the latest week.
A report from the US Labor Department released on Wednesday showed that job openings in November fell to the lowest level in more than two years, offering some evidence of cooling in the labour market, which could pave the way for the Federal Reserve to start cutting interest rates this year. The report also showed that the number of people quitting their jobs, most likely for higher paying positions, dropped to the lowest level since February 2021. With fewer people job-hopping, wage growth could continue to moderate and ultimately contribute to lower inflation.
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