Contact us
Client and adviser portal
Log in

Core work-out?

Weekly update
  • Weekly market update
  • 5 minute read

A good week for

  • Europe was the best performing equity region, gaining c. +2% in sterling terms
  • UK equities gained c. +1.5%

A bad week for

  • Bonds broadly declined, led lower by UK gilts
  • Yen weakness dented the performance of Japanese equities

UK inflation

UK inflation fell by more than expected in January. Year-on-year inflation was 10.1%, down from 10.5% in December, while core inflation measured 5.8% (down from 6.3%). Inflation continued to moderate in the categories of the CPI basket most exposed to global factors. Fuel price inflation slowed from 11.5% in December to 7.7% in January. Moreover, the recent falls in oil prices suggest it will approach 5% in February. Core goods inflation also fell, reflecting global trends. However, some parts of the basket showed surprising strength. Food price inflation remained unchanged at 16.8%, its joint highest rate since September 1977. Falling headline inflation reduces the pressure on the Bank of England’s Monetary Policy Committee (MPC) to continue raising interest rates.

UK labour

While falling inflation is welcome to the MPC, continued labour market tightness remains a concern. Last week’s labour market report included some signs that the labour market is easing, though unemployment remains low at 3.7%. Firstly, trends in participation, which fell in the wake of the pandemic, show signs of reversing. A decline in inactivity increased the workforce by 119,000, with falls in the number of workers who have retired early and who are on long-term sick leave. Higher living costs may be bringing these workers back to the labour market. Redundancy notices also increased to almost 10,000 in the week ending 29th January, the most for two years. While headline pay accelerated, excluding bonuses, the annualised growth in private-sector wages on a rolling 3m/3m basis declined to 6.9% in December, from 7.5% in November. A slowdown in the labour market would give the MPC confidence in ending monetary tightening.

US inflation

Across the pond, US inflation came in stronger than expected in January. Year-on-year, CPI slowed to 6.4%, down from 6.5% but ahead of economists’ expectations. Core inflation was also stronger at 5.6%, down from 5.7% in December. The strength was mostly attributable to higher energy prices, which had been a negative contributor to CPI in prior months. However, while energy prices continue to decline, household utility prices increased. Looking at the core services component of CPI, which is of greatest interest to the Federal Reserve Open Markets Committee as it is most reflective of wage growth, this component was depressed by a fall in the cost of health insurance, which is unlikely to be repeated.

Japan economy

Japan reported a small rise in GDP in the last quarter of 2023, avoiding recession. After GDP fell by 0.2% quarter-on-quarter in Q3, the economy grew by 0.2% in Q4, weaker than economists had expected. While the easing of Covid-19 restrictions allowed consumption to recover, rising 0.5% in Q4, business investment and inventory investment contracted, pulling down growth. As a popular tourist destination with Chinese visitors, Japan should benefit from China’s reopening but its manufacturing sector may suffer from a global downturn in goods demand, making recession possible. Nonetheless, the Bank of Japan is expected to continue to tighten monetary policy, with a new Governor to be appointed to the Bank. The government formally nominated Kazuo Ueda as the next Governor at a session of the Diet and, while his views on monetary policy are not yet well understood, the Yield Curve Control policy is becoming increasingly burdensome for the Bank to implement.

Eurozone economy

The second estimate of Eurozone GDP growth in the fourth quarter of 2022 pointed to a significant decline in household spending due to high inflation. Quarter-on-quarter growth was revised down modestly to 0.4% in Q4. Among the main countries of the region, Germany and Italy contracted while France and Spain grew. Overall, the headline GDP growth print is flattered by a surge in the Irish economy, due to Irish-registered companies. Excluding Ireland, Eurozone growth would have been modestly negative. Labour market data also shows signs of easing. Official Eurozone data showed a rise in employment and a further decline in unemployment last quarter. However, monthly data already showed the number of unemployed up slightly in November and December.

 

Important information
The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.

!

Before you invest, make sure you feel comfortable with the level of risk you take. Investments aim to grow your money, but they might lose it too.

Close Brothers Asset Management Logo

Important compliance information for institutional investors and FCA authorised intermediaries

For use by institutional investors, FCA authorised intermediaries and connected persons only – it must not to be relied upon by retail clients. If you are a retail client please return to the main part of the website.

Please read this page before proceeding, as it explains certain restrictions imposed by law on the distribution of this information and the countries in which our funds are authorised for sale. It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction.

This part of the Close Brothers website is for information purposes only. It is not intended to be relied upon to make any investment decision. Although the information herein has been obtained from sources believed to be reliable, neither Close Brothers Asset Management or any of its employees guarantee its accuracy, completeness or fairness. The most recent data has been used where possible. Except in so far as liability under any statute cannot be excluded, no member of Close Brothers Asset Management accepts liability (whether arising in contract, tort or negligence) for any error or omission in this document. 

The information contained on these pages is believed to be correct but cannot be guaranteed where data is sourced from third parties. Opinions constitute our judgment as at the date shown and are subject to change without notice. The information on this website is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. This does not constitute an offer or solicitation to sell shares in any of the funds referred to on this site, by anyone in any jurisdiction in which such offer, solicitation or distribution would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. 

Applications to invest in any fund referred to on this site, must only be made on the basis of the offer document relating to the specific investment (e.g. prospectus, simplified prospectus or other applicable terms and conditions). 

As a result of money laundering regulations, additional documentation for identification purposes may be required when you make any investment. Details are contained in the relevant Prospectus or other constitutional document. 

If you are unsure about the meaning of any information provided please consult your Close Brothers contact, financial or other professional adviser. 

The information contained on this site is subject to copyright with all rights reserved. It must not be reproduced, copied or redistributed in whole or in part. 

We may source data from reputable third party data providers, however, we accept no responsibility or liability for the accuracy of such data. 

We accept no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. 

You acknowledge and agree that it is your responsibility to keep secure and confidential any passwords that we issue to you and your authorised employees and not to let such password(s) become public knowledge. If any password(s) become known by someone other than you and your authorised employees, you must change those particular password(s) immediately using the function available for this purpose on the Website. 

On accessing the Close Brothers Asset Management website, you are aware of the following investment risks applicable to all Close Funds: 

PAST PERFORMANCE RISK-Past performance, though extensively used in analyzing investments, is not a reliable indicator of future returns. 

RISK OF PERMANENT CAPITAL LOSS-The risk that investments may fall in value permanently with little or no expectation of recovery, including the possibility of total loss of the amount invested. Typically, this applies to individual securities. 

RISK OF REDUCED INCOME-The risk that income derived from investments falls significantly and no longer fulfils its objective in a portfolio with a corresponding fall in the capital value if realised. 

VOLATILITY RISK-The risk of a decline in the value of a group of investments due to market fluctuations. Typically investors measure this risk over short timescales. 

INFLATION RISK-The risk that the growth of investments does not keep pace with inflation over the longer term, i.e. a reduction in the real purchasing power of one's capital. 

LIQUIDITY RISK-The risk that an investor cannot gain immediate access to capital. 

TAX RISK-The risk that the tax regime generally affecting returns, a particular asset or a specific tax efficient scheme may change or be removed with consequent impact on investment returns and strategies. 

CURRENCY RISK-The risk that movement in rates of foreign exchange may cause the value of investments and/or income derived from them to fluctuate independently of the value of the underlying asset and may amplify losses or impact gains when translated into the investor’s base currency. 

BENCHMARK RISK-The risk that investments do not beat a specific benchmark over the longer term, e.g. the failure to match the returns of a given equity index, bond index, or a blend of these. 

This site is operated by Close Asset Management Limited (Company No. 1644127) which is registered in England and Wales, is authorised and regulated by the Financial Conduct Authority and is a subsidiary of Close Brothers Group plc. Close Asset Management Limited is a member of the Close Asset Management group and uses the trading name Close Brothers Asset Management. Registered office at 10 Crown Place, London EC2A 4FT. VAT Registration No 245 5013 86.