Fed brings Santa to equity markets

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 15 December 2023.

| 10 min read

The traditional ‘Santa Claus’ rally has arrived, courtesy of Federal Reserve chair Jay Powell.

The US central bank boosted equity markets, caused treasury yields to fall, the dollar to slide against other currencies and the gold price to rise – despite holding interest rates steady. However, the tone surrounding the announcement had a more dovish tone. The documentation released after the meeting indicated that members of the rate-setting Federal Open Markets Committee now predicted three quarter-point cuts next year.

The Bank of England also held interest rates, but its tone was far from dovish. The announcement was accompanied by a warning on inflation, which the central bank noted remains higher and stickier than in other nations.

Representatives from almost 200 countries agreed at the COP28 climate summit to begin reducing global consumption of fossil fuels to avert the worst of climate change. Good COP, bad COP? A look at the deal struck in Dubai.

Over the week, the blue-chip FTSE 100 index was up 1.2% by mid-session on Friday, with the more UK-focused FTSE 250 trading 3.4% ahead.


The International Energy Agency (IEA) said evidence of softening global oil demand is mounting – and this slowdown is expected to continue into 2024. The IEA said oil market sentiment had turned “decidedly bearish” in recent weeks, even after some Opec+ members announced a new round of voluntary production cuts in the first quarter of next year. Oil prices are now at their lowest level since June 2023.


The US Federal Reserve (Fed) boosted equity markets, caused treasury yields to fall, the dollar to slide against other currencies and the gold price to rise (Should you invest in gold?). Jay Powell, the chair of the central bank, sent a clear signal that borrowing costs would fall in 2024. The Fed held interest rates at a 22-year high, but the decision came alongside new forecasts from central bank officials pointing to 75 basis points worth of cuts next year — a more dovish outlook for rates than in previous “dot-plot” projections. The decision was regarded as a “dovish hold” by markets, with interest rates held at 5.25% to 5.5%. The benchmark rate was now “likely at or near its peak for this tightening cycle”, Mr Powell said. The official dot plots released after each meeting showed that most members of the Federal Open Markets Committee expected rates would end next year at 4.5% to 4.75%. Officials expect rates to fall further in 2025, with most officials forecasting they would end up between 3.5% and 3.75%.

As the Federal Reserve sparks a market rally after changing tack on interest rates, we ask how autonomous are the world’s central banks?

The Bank of England (BoE) also held interest rates (at 5.25%) for the third consecutive time but struck a more hawkish tone, noting that the choice had been a difficult one. The central bank warned that Britain stood apart from other major economies. It cautioned that, relative to developments in the US and Euro-area, measures of wage inflation were considerably higher in the UK and services price inflation had fallen back by far less than in those economies.

The UK manufacturing sector saw output surge in the fourth quarter.

The European Central Bank left its key discount rate unchanged at a record high of 4% and indicated it has no plans to cut interest rates any time soon. The decision had been widely expected, as inflation has started to slow and economic growth has gone into reverse because of previous rate increases. The central bank now expects a sustainable return to the 2% inflation target from 2025 onwards, implying that it won’t need to add to what has been its most aggressive policy tightening in 25 years.

The UK manufacturing sector saw output surge in the fourth quarter, according to an industry survey. The output balance in the latest Manufacturing Outlook survey from BDO and Make UK, the trade body, increased to 20 from just 3 in the third quarter. Sentiment also improved, with respondents expecting output to remain at a similar level in the first three months of 2024, with a balance of 15. Total orders also strengthened, but at a slower pace, rising to 7 from a negative balance of -1 in the third quarter. Make UK said output increasing by almost three times the rate of orders was "highly unusual" and could be indicative of stockpiling or restocking ahead of next year.

Despite the Bank of England's warning about salary rises, UK wage growth has slowed – and jobs vacancies have dropped – as the employment market cools amid a weak economy and high interest rates. Average basic pay (excluding bonuses) grew by 7.3% per year in the August-October quarter, down from 7.8% growth a month ago. Including bonuses, pay growth was slightly slower – up 7.2% year-on-year, a slowdown on the 8% total pay growth a month ago, and a larger fall than expected. However, wages are still rising faster than inflation. In real terms, both basic and total pay grew by 1.2% – accounting for rising prices.

The latest data from Rightmove revealed that the housing market showed tentative signs of stabilising in December despite a further slide in house prices. This mirrors similar comments from Halifax earlier in December. Rightmove said house prices fell by 1.9% this month, noting that prices normally dip in December due to seasonal factors. However, this year’s fall was more than the previous 20-year average of a 1.5% decline. Year-on-year, house prices were down 1.1%, however.

China’s consumer price index (CPI) fell at its fastest rate in three years in November – 0.5% on both a monthly and annual basis compared with October. Consensus forecasts were for a 0.2% decline. Core inflation, which excludes volatile food and energy prices, was unchanged at 0.6%.

Argentina's new government unveiled plans to weaken the value of its currency by more than 50% against the US dollar. As part of a policy of "economic shock therapy", new President Javier Milei said the country needed to devalue to fix its worst crisis in decades. Economy Minister Luis Caputo said he had inherited the worst economic legacy in Argentina's history – and he was taking steps to avoid hyperinflation.


Vladimir Putin has told Russians that peace with Ukraine will only take place "when we achieve our objectives". The Russian President held his first major news conference since he launched his full-scale invasion of Ukraine in February 2022. Mr Putin said that "there will be peace when we achieve our objectives". Those "objectives do not change", he said, listing "denazification, demilitarisation and its neutral status".

The US House of Representatives voted to formally authorise its ongoing impeachment inquiry into President Joe Biden, as Republicans unite behind the effort even though they have yet to find evidence of wrongdoing. The Republican-controlled chamber voted 221-212 along party lines to approve the investigation.

The European Commission worries about migration and the green transition as it looks ahead to European elections in 2024.


Customers of UK mobile phone, broadband and pay-TV companies will be banned from imposing inflation-linked price rises in the middle of a contract and must instead tell customers upfront and in “pounds and pence” about any price rises, under new rules proposed by the telecoms watchdog Ofcom. The regulator said inflation-linked mid-contract price rises did not provide enough clarity about the prices people will pay, and caused “substantial amounts of consumer harm” by hampering their ability to shop around for a better deal.

Dove soap and Marmite-maker Unilever is being investigated over its environmental claims, amid concerns shoppers are being misled by “greenwashing”. The Competition and Markets Authority said the consumer products giant may be overstating the "greenness" of certain products. The head of the regulator, Sarah Cardwell, said she was worried consumers are being misled by "so-called 'green' products that aren't what they seem".

Company news

Miner Anglo-American unveiled plans to cut operational costs by about $1bn by the end of 2024. As part of the plans iron ore and copper output will reduce, with overall production falling by about 4% as near-term constraints and volatile market conditions weigh on earnings – and its market valuation. Speculation has started that its share price fall may result in the company becoming susceptible to a takeover or merger approach.

Bunzl upgraded its full-year profit outlook, helped along by acquisitions. The distribution and services group Bunzl anticipates its 2023 revenue will align closely with the previous year's figures, despite various challenges, including the disposal of its UK healthcare business and a “post-pandemic market normalisation”. The company, which has a strategy of bolt-on acquisitions in fragmented markets, has made £1.7bn of strategic acquisitions over the past four years which has been a cornerstone of its growth strategy.

Currys’ management maintained its annual guidance to the City as interim losses narrowed and its Nordics unit reported an improvement in margins. The electronic goods retailer posted a first-half loss before tax of £46m, compared with a loss of £548m in the equivalent period of 2022.

Capita reported a rise in revenue as it continued to recover from a cyberattack earlier in the year. The debt-laden government contractor reported a boost in contract wins in the second half of the year, fuelling hopes the business may have turned a corner.

Government contractor Serco confirmed that 2023 revenues and profits will be in line with guidance, with management expecting further profit growth in 2024. Serco also announced that it is acquiring a public-facing immigration services provider in Germany, European Homecare, for £34m.

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Fed brings Santa to equity markets

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