The US S&P 500 index hit 5,000 for the first time in intraday trading on Thursday, before retreating slightly below that level at the close. Japan’s Nikkei hit fresh 34-year highs on Friday, while most Asia-Pacific markets were either fully or partially closed for Lunar New Year holidays. Beijing changed the head of its stock market regulator as it attempts to deal with negative sentiment surrounding its stock market, but trading on the mainland is shut until the end of next week as the country prepares to celebrate entering the year of the Dragon.
Over the week, the blue-chip FTSE 100 index was down 0.3% by mid-session on Friday, with the more UK-focused FTSE 250 trading 0.4% lower.
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Uncertainty about interest rates and stubborn inflation have been driving markets and investor confidence for the last 12 months. Investors will be watching keenly for more clarity on these key issues in 2024. Charles Stanley’s Chief Investment Officer Patrick Farrell looks at the main global market drivers in 2024.
Five more Federal Reserve officials suggested that they don’t see an urgent case for lowering interest rates imminently. Federal Reserve Bank of Cleveland President Loretta Mester said that policymakers will probably gain confidence to cut interest rates “later this year” should the economy continue to progress in line with expectations. But, she said, there is no need to rush to cuts. Governor Adriana Kugler, the Boston Fed’s Susan Collins, the Minneapolis Fed’s Neel Kashkari and Richmond’s Thomas Barkin were all noncommittal on when the US central bank can start easing policy.
Western central banks have tried to lower expectations of rate cuts, but the trend this year will be down. But when will borrowing costs start to fall?
China has a deflation problem.
UK house price rises in January were the highest for a year as mortgage rates continued to ease, the Halifax said. A slowdown in inflation and a buoyant employment market also helped push property prices up, the mortgage lender noted. A typical home now costs £291,029 on average, a 2.5% jump from January 2023, it said.
German industrial production fell more than expected in December, down 1.6%, compared with expectations of a 0.4% decline. The figure compared with a 0.2% fall in November. On an annual basis, industrial production was down 3%. There was a major decline in the chemical industry, with production falling by 7.6% on the month, and in construction, with a 3.4% decline. However, there was a 4% increase in automotive industry production.
German residential property prices slumped in 2023. The German Real Estate Index, published by the Kiel Institute for the World Economy, showed that sale prices of apartments fell by 8.9% during the year, while single-family home prices fell 11.3%. The price of multi-family homes dropped 20.1% during the year.
China has a deflation problem. Consumer prices across China are falling at the fastest pace in 15 years, as its economy struggles with weak demand. The country’s consumer price index fell 0.8% year-on-year in January – the fourth straight month of declines and the biggest contraction since 2009 after the financial crisis. The inflation rate was dragged down by falling food prices, which dropped by 5.9% year-on-year in January. When prices begin to fall, people expect they will continue to go down. This expectation results in people spending less today, in the hope of buying at a cheaper price tomorrow. This is generally bad for businesses and the wider economy.
Global growth: both the International Monetary Fund and the Organisation for Economic Co-operation and Development preach prudence amidst their gloom.
Republicans see migration as the subject that can win them votes in the presidential election later this year – so it is an issue they want to talk about. Immigration will be a big issue in the US election.
Russian President Vladimir Putin and Chinese President Xi Jinping spoke by telephone – and both men rejected what they called US interference in the affairs of other countries. Kremlin aide Yury Ushakov gave details of the call in a briefing to journalists, saying the two leaders had spoken of creating a "multipolar, fairer world order".
Boris Nadezhdin, an anti-war candidate who gathered unexpected momentum, has been banned by Russia’s electoral authority from running against Vladimir Putin in the carefully managed presidential elections in March. The central election commission said it had found “irregularities” in over 9,000 of more than 100,000 signatures of support submitted by Boris Nadezhdin. That figure was three times higher than the allowable 5% error rate and provided grounds for the commission to disqualify him. The Kremlin said it had “nothing to add” and that the commission followed all the established rules.
China's cabinet removed Yi Huiman as the chairman of the China Securities Regulatory Commission, the stock market regulator, amid a plunge in the Chinese equity market. It appointed Wu Qing, a veteran banker, as the new head of the securities regulator, the country’s official Xinhua news agency reported. This sparked hopes that the Chinese government will be more forceful in its push to prop up financial markets. However, the start of Lunar New Year holidays to usher in the Year of the Dragon has cut the momentum in Chinese stocks short, with trading on the mainland shut until the end of next week.
BP shares surged after its fourth-quarter results, despite a fall in annual profits, after they beat market expectations. The energy giant announced a $1.75bn share buyback and management said it expected first quarter 2024 upstream production will be higher compared to the final three months of 2023.
AstraZeneca shares fell after its quarterly results. Although the drugmaker reported slightly-better-than-expected fourth-quarter revenue, profit was short of analyst estimates, hurt by a step up in R&D investment and price reductions for some medicines in emerging markets. Management expects to boost revenue and profit this year on the back of resilient demand for its cancer and rare disease drug. The group expects total revenue and core earnings per share to increase by percentages in the low teens this year.
Unilever’s fourth-quarter figures were broadly in line with market expectations. Volume group turned slightly positive after declines in previous quarters, but the more discretionary Ice Cream business remains an area of weakness amidst pressure on consumer spending. New chief executive Hein Schumacher has prioritised 30 power brands which make up 70%+ of sales, with these growing by a faster 8.6%. Pruning of the portfolio towards higher-growth products continues.
Shares of US-listed Arm Holdings surged about 60% after the company third-quarter results topped expectations and noted that it was benefitting from strong demand for artificial intelligence applications. The company also issued fourth-quarter guidance that was better-than-expected, with revenue expected to be $850-$900 million versus the $778 million estimated. The chip design group says in the release that "growth was driven by both royalty revenue and license revenue".
OpenAI, the company that is responsible for the artificial intelligence product ChatGPT, is now one of the fastest-growing technology companies in history. Revenues in December if annualised would result in yearly revenue of $2bn, according to the Financial Times. Sources told the newspaper that the Microsoft-backed company believes it can more than double this figure in 2025.
Shares in Danish shipping giant Maersk slumped after it flagged “high uncertainty” in its 2024 earnings outlook. Maersk warned that container shipping overcapacity would hit profits more than expected this year – and management said it didn't see a major boost from the jump in freight rates due to Red Sea disruptions. The company also said that it would be suspending share buybacks on the back of the uncertainty.
Shares in Barratt Developments fell after it unveiled a £2.5bn merger with fellow housebuilder Redrow. The move will create the UK’s largest house building company, with Barrett’s shareholders holding approximately 67.2%, with Redrow investors accounting for the remaining 32.8%. Based on the closing price of Barratt before the deal was announced, Redrow shareholders will get a premium of about 27.2% if the merger is approved.
FTSE 100 listed Mondi said it was in the early stages of considering a possible all-share bid for its smaller rival DS Smith, a move which could create a packaging giant worth more than £10bn. DS Smith had earlier on disclosed that it received a highly preliminary expression of interest from Mondi, although no formal proposal.
US group Walt Disney posted a very strong set of quarterly results and its chief executive, Bob Iger claimed it had “entered a new era”. The company was boosted by record returns in its global resorts division, which includes the well-known theme parks, announced a $1.5bn move into video games, striking a partnership with Epic Games, the publisher of Fortnite, and agreeing to take a minority stake in the business. The Hollywood giant said it would build a “games and entertainment universe” with Epic for fans of its key franchises, including Pixar, Marvel and Star Wars.
Supermarket J Sainsbury plans to save £1bn over the next three years and focus more heavily on food. The company, which also owns Argos, said its plans included an overhaul of its supermarket offering that would see general merchandise and clothing space reduced across many of its main stores to make way for more groceries. The decision reflects recent sales trends at the chain.
Barclays is buying Tesco's retail banking operations in a deal worth £600m to the supermarket giant. Barclays is taking over Tesco Bank's credit cards, loans and savings accounts and has also agreed to market Tesco-branded banking services. Under the deal, about 2,800 of Tesco's banking staff will transfer to Barclays.
Utility group SSE has been hit by the “wrong” sort of weather. Its output from renewable power sources last year was hampered by the weather and also slowed the rollout of new wind turbines. SSE Renewables output over the last three quarters was around 15% below plan, having been hit by “mixed weather conditions, short-term plant outages” and the rephasing of its flexible hydro output. Work on an offshore wind farm at Dogger Bank has been disrupted by a series of storms.
Danish wind turbine maker Vestas returned to profitability and beat fourth-quarter operating earnings forecasts. Management, however, warned that uncertainties persisted for the industry and that it would not pay a dividend for 2023 "due to the low level of profit that would result in a mere token dividend". Turbine makers have been struggling with supply chain problems and higher raw material prices, which have hampered earnings and their ability to deliver projects.
In a meeting with institutional investors and analysts, defence engineering group Babcock said that it is trading in line with expectations.
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