We are 17 days into the new year and historically the number 17 means the “manifestation of positive outcomes” and “complete victory”. This has definitely been a more positive day and week in markets, and there is certainly the prospect of a positive outcome in ceasefire talks between Israel and Hamas. Economic data this week was mixed however, with some data from the UK particularly underwhelming.
US Headline inflation (year-on-year) was reported at 2.9%, almost 1% above the US Federal Reserve’s target of 2%, aligning with the Fed’s projections for fewer rate cuts over the year. A positive note is that core inflation (excludes food and energy prices) for December dropped to 3.2% after remaining firm at 3.3% for three consecutive months. In just three days, Mr Trump will begin his second stint in the White House, and the continued threat of tariffs on imported goods and mass deportation of immigrants are seen as acts that could further raise inflation. The US Fed will be patient to see how the start of the year unfolds but has already projected a shallower rate cut path, with no rate cut expected in the January meeting.
We will remain in the US where we cover retail sales, which rose 3.9% (year-on-year) in December. Miscellaneous store retailers, which include gifts shops and florists, saw an increase of 4.3% due to the Christmas period, whilst sales of sporting goods, hobby and musical instruments jumped 2.6% and furniture stores sales rose by 2.3%. Continued consumer strength is being driven by strong wage growth, and markets also sense consumers may be rushing to purchase goods in anticipation of the Trump tariffs, which ultimately raise prices for consumers.
You may be reading this report on your Apple iPhone, but if the report reaches China it’s likely they’ve switched their iPhones out for local rivals Vivo or Huawei. 2024 was Apple’s worst year for iPhone sales in almost a decade, as Vivo captured a 17% market share, closely followed by Huawei with 16%. Artificial intelligence certainly played a role – or in Apple’s case the lack of it- as the latest iPhones sold in China have no access to ChatGPT, forcing Apple to negotiate with China’s domestic companies to integrate AI features.
In the UK, inflation (year-on-year) bucked the recent rising trend and fell to 2.5% for the month of December. A significant positive for the Bank of England (BoE) to consider is the fall in services inflation from 5% in November to 4.4%, the lowest level in 33 months. We reported last week that yields had risen as high as 5.47% (long-dated bonds), the highest since 1998, but have since fallen. The steep fall in yields this week has boosted government bond prices and will ease some pressure on Rachel Reeves.
UK GDP figures for November were released the day following the inflation report, showing positive economic growth of 0.1% (month-on-month) after declines in September and October. Market forecasts had predicted a 0.2% rise in GDP, reflecting the continued gloomy mood over the UK economy since Chanceller Rachel Reeves’ autumn budget. Rachel Reeves did speak following the report, pledging she was “determined to go further and faster to kickstart economic growth”.
UK Retail sales for December is the latest data we have, released this Friday morning, and it surprised by falling -0.3% (month-on-month). Market expectations were for a 0.4% monthly increase, especially with a Christmas bounce; however, this did not materialise as consumers pulled back on food spending. Poor retail sales, weaker than expected economic growth, and the fall in inflation, including services inflation, could provide the BoE with an opportunity to cut rates in their first meeting of the year in February. It appears that bad economic news is good news for markets, as UK equities rose this week. The large cap index is now a whisker away from all-time highs and the mid-cap index advanced over 2.5% on Wednesday following the positive inflation data.
At a company level news broke on Friday morning that Rio Tinto and Glencore had held discussions about a potential merger. While talks are no longer active, there is potential for a deal to be done later in the year. Any merger would be the largest ever in the mining industry.
As we look out to next week all focus will be on Trump’s inauguration on Monday. He has promised strong action, from tariffs to tax cuts, to even trying to buy Greenland! It will be interesting to see what he can actually implement, and how markets will react.
Nathan Amaning, Investment Analyst
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