04 January 2024
If you are covering the latest financial market news, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“Christmas cheer and the associated Santa rally that came has seemingly flamed out for stock markets, with the year getting off to a poor start. Yesterday’s disappointments primarily came from soft labour market data in the US, unconvincing minutes from the recent Federal Reserve meeting and fresh geopolitical concerns as the Gaza/Israel conflict shows more signs of spreading. Markets are off to a rocky start and serve to remind that despite the expectations of rate cuts this year it isn’t going to be plain sailing.
“Taken in order, the US job data for November showed openings were slightly lower than the market had expected, but the hires rate, the proportion of employed people who were hired in the month, was the lowest since the midst of the pandemic. With unemployment still low, at 3.7%, this softening is so far only impacting hiring rather than firing, but of course that could still change.
“Minutes released from the Federal Reserve last night also acted to dampen the optimism that the market took away from the post-meeting comments by Fed Chair Powell in mid-December, with further mention that rates should stay high for “some time”. Given market expectations around rate cuts were already quite punchy, this confirms that things won’t move as quickly as some would like and it needs to be accepted that the Fed is still very data driven around inflation and the economic data.
“Meanwhile, oil prices have jumped 3.1% amidst news of a major oil field shutdown in Libya, following local protests, and the recent spate of attacks in the Red Sea, Lebanon and Iran, indicating that the Gaza/Israel conflict is moving beyond their own borders. With oil prices having fallen over the course of 2023, supporting the disinflation agenda, this is really a one-off gain. The bigger concern for inflation in 2024 is the sharply rising freight rates, particularly on Asia-Europe routes, and disrupted supply chains, with Maersk on Tuesday abandoning earlier plans to resume Red Sea transits “until further notice”. It will be logistically very challenging to secure the Red Sea against Houthi attacks and so with passage via Africa adding 10-12 days to sailing times, and a significant amount to costs, this could be a further headache for already struggling European manufacturers in the coming months.”
