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January was a mixed bag for global investment markets, as conflicting information left investors with more questions than answers. Expectations of earlier-than-expected interest rate cuts by central banks in the major developed market were firmly dismissed as the month went on, as inconsistent economic data highlighted the need for policymakers to hold rates firm at current levels once again. However, the US economy moved from strength to strength after reports of continued economic output growth was reflected in asset prices.

This was also the case in Japan, where a robust corporate earnings season and strong tourism boosted domestically-focused firms. Meanwhile, equity markets in China continued to retreat as downbeat economic data and negative headlines for the property sector fuelled investor pessimism about its growth outlook.

UK economy expands again (only just), while economic headwinds show signs of abating

  • The UK economy returned to growth in November, as gross domestic product (GDP) expanded by 0.3%, following October’s 0.3% contraction. This was slightly ahead of the 0.2% growth expected by economists.
  • The Office for National Statistics (ONS) reported annual inflation, as measured by the consumer prices index (CPI), increased from 3.9% to 4.0% in December, halting recent declines. Economists had expected CPI inflation to fall to 3.8%.
  • The ONS also reported that UK public sector net borrowing (excluding public sector banks) declined to £7.8bn in December. This marked its lowest December deficit since 2019, just before the pandemic, and was half as much as the UK borrowed in December 2022.
  • The S&P Global/CIPS UK services purchasing managers’ index (PMI) survey climbed to 53.4 in December, the highest since June. This was up from 40.9 in November and the preliminary reading of 52.7. There has been a notable increase in optimism for UK companies regarding the 2024 outlook, driven by the prospect of a sustained turnaround in client demand.

US economy strengthens, but its hot labour market dashes hopes of early interest rate cut

  • The US economy expanded at a higher-than-expected rate in the fourth quarter of 2023, fuelled by consumer spending. GDP increased at a 3.3% annualised rate, according to the preliminary estimate, down from 4.9% in the third quarter, but markedly stronger than the 2.2% market forecasts. In 2023 overall, the US economy expanded by 2.5%, its strongest performance since 2021.
  • The core personal consumption expenditure (PCE) index, the preferred measure of inflation for the US Federal Reserve (Fed), eased from 3.2% to 2.9% in December, according to the US Bureau of Economic Analysis. This was just below the 3% expected by economists. The standard PCE measure (including food and energy) remained unchanged at 2.6%.
  • On the surface, January’s employment report likely wasn’t what the Fed was hoping for. Non-farm payrolls surged 353k, nearly double the consensus forecast, while December’s gain in payrolls was revised sharply higher, and average hourly earnings growth accelerated 0,6% month-on-month. Also, the unemployment rate stayed at 3.7%, while analysts had expected an uptick to 3.8%. This noise in the January data quelled investor hopes of an early interest rate cut.

Global economic outlook more positive, but some bumps along the way, according to IMF

  • The International Monetary Fund (IMF) released its latest World Economic Outlook update, stating that “the likelihood of a hard landing has receded” due to stronger-than-expected economic growth and disinflation occurring across the globe. Growth is projected to be 3.1% in 2024 and 3.2% in 2025, with the 2024 forecast 0.2% higher than the October 2023 update. This was largely because of greater-than-expected resilience in the US and several large Emerging Market and developing economies, as well as fiscal support announced in China.
  • Inflation is falling faster than expected in most regions, amid unwinding supply-side issues and restrictive monetary policy. As a result, global headline inflation is expected to fall to 5.8% in 2024 and to 4.4% in 2025, with the 2025 forecast revised down. The next challenge for policymakers is to navigate the final descent of inflation to target, calibrating monetary policy in response to underlying inflation dynamics and – where wage and price pressures are dissipating  – adjusting to a less restrictive policy stance.
  • However, we note bumps along the road to reach these targets, namely the Houthi attacks on merchant ships in the Red Sea disrupting operations. According to the German economic institute, IfW Kiel, the volume of containers transported in the Red Sea more than halved in January and is currently almost 70% below the usual volume. Many economists are watching developments closely to understand whether there are any more near-term shocks on the horizon.


Regarding the global stock market, January saw two major conflicting headlines across the regions. First, the Chinese property sector was the key story in Emerging Markets, as one of China’s largest property companies went into liquidation. The property sector makes up about one-quarter of the Chinese economy, with the unease across the sector contributing to a lacklustre equity market. This depressed several company valuations even further as investor pessimism became more justified. However, we did see signs of life for the Chinese economy with Beijing attempting to stimulate demand by reducing bank reserve requirements. This caused a brief bout of confidence and rallied asset prices, but this quickly evaporated.

The second conflicting headline for market movements was the strength in the US. The driving factor for the commonly reviewed US market-capitalisation weighted indices was their heavy weighting to tech giants, of which, many had posted stellar earnings reports. This propped up equity market returns in the US as other company valuations moved downward as investors readjusted their expectations for interest rate cuts.

In the bond market, yields spiked back upwards in response to the latest economic data. Over January, the ten-year UK government bond (Gilt) started the month yielding 3.53% and the ten-year US Treasury yielded 3.88%. January closed with the same Gilt offering 3.79% and the US Treasury 3.92%, respectively, as expectations of an imminent rate cut dissipated. As a reminder, there is typically an inverse relationship between a bond’s price and the yield it pays investors, with this scenario reflecting the expectation that interest rate cuts would now come later in the year.