Early this week many across the world celebrated the day of love, Valentines. Regardless of the current economic environment, the gifts and gestures are still given in abundance, with US consumers spending $26bn on the day alone. That figure is up from $23.9bn last year and marks the second highest year of spending over the last 30 years.
This week has also been jam-packed with data releases. On Wednesday there was a slowdown in UK inflation as annual CPI came in below forecasts at 10.1% and core inflation (excluding food and energy) dropped to 5.8% from the previous 6.3%. The better-than-expected fall in inflation will be a relief to the Bank of England, giving confidence their series of rate hikes are working. The latest release was the second data point proving the peak in inflation may be behind us. As a result, sterling has fallen against the Dollar almost 150 basis points towards the end of the week to $1.19.
The UK market has been on a tear since Q4 ‘22 as the drop in inflation further boosted markets. We’ve seen the FTSE 100 now break 8,000, reaching all-time highs. We’ve previously spoken about record profits from the UK’s large energy firms Shell and BP, and Centrica, the parent company of British Gas, has now also seen sky-high profits of £3.3bn. Campaigners have spoken out on tougher windfall taxes and lower prices on the company as they attempted to install prepayment meters in households. Last year the CEO of Centrica, Chris O’Shea, waived his £1.1m bonus as he could not accept it “given the hardships faced by our customers”, he has yet to comment if he will do the same this year-round.
Inflation in the US was a similar story as annual inflation rose 6.4%, down only 0.1% from the previous month. Core inflation also dropped 10 basis points to 5.6%, however the move is not as significant as economists predicted. The latest inflation results still have a way to go to reach the US Fed’s target of 2% and investors are almost certain further hikes will take place. The continued strength in the jobs market is another factor the Fed will be monitoring, as wage increases may feed inflationary pressures.
US retail sales have roared back in January, smashing the forecast of 1.8% and delivering 3%. This was the greatest increase in over two years and follows on from two negative months. When analysing the breakdown, motor vehicles purchases led the race at 5.9%. Lower income households are certainly feeling the pinch of elevated interest rates, however banks believe there are still suitable cash buffers and borrowing capacity.
In a never-ending saga, RMT, the union which represent 40,000 workers across 15 train operators has rejected the latest offer from employers. This has again led to more planned strikes over the coming weeks with the next scheduled date in just a month’s time. It is important to state that the union are not only battling for better pay, but greater job security and working conditions.
Every week following data releases, the pendulum swings and investors are left to guess the moves policymakers will make next. We try to stay clear of the short-term noise and ensure that we are not overly exposed to specific outcomes.
Nathan Amaning, Investment Analyst
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