12 March 2024
If you are covering the latest news in financial markets, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“CPI data out later today will provide a further insight into whether the US is continuing its disinflationary glide path back towards a 2% landing zone, with consensus expecting a month on month reading of 0.4% which would leave the annual rate stable at 3.1%.
“Yesterday’s Survey of Consumer Expectations, published by the New York Fed, highlighted that consumer expectations of inflation in both three and five-years’ time had increased sharply, with longer-term forecasts notching up to a six-month high, increasing from 2.5% to 2.9%. This indicates that the Federal Reserve may need to stay in this fight longer than many might have expected. Respondents were increasingly optimistic that unemployment would be lower in a year’s time than it is now, but conversely saw a higher probability of people losing – or voluntarily leaving – their jobs in the next 12 months. There was a more pronounced effect for respondents on lower incomes, suggesting that while consumers on aggregate see an improving economic outlook, it isn’t expected to be enjoyed by all.
“Labour market data published in the UK reflected a slowing pattern, with January payrolls data revised sharply lower, unemployment ticking up a notch to 3.9% and annual growth in average total earnings falling slightly to 5.6% from 5.8% in the prior three-month period. While this is ultimately a picture of a labour market in decent shape overall, and nowhere near the level which usually goes hand in hand with recession, it has shown signs of weaker short-term trends. This provides further indication that tight monetary policy is having an effect, which will be welcomed by the Bank of England, if not by employees in salary negotiations.
“Jamie Dimon, CEO of JP Morgan Chase & Co, echoed recent comments by David Solomon, CEO of Goldman Sachs in saying that the chances of a soft landing were considerably lower than the very high likelihood now priced in by markets. With risk assets having rallied sharply in recent weeks, amidst a strong quarterly earnings season, easing financial conditions and rising hopes that inflation can be brought back to target without triggering a lengthy recession, markets are currently looking at the short-term picture and finding a sense of relief that the much-signalled US recession hasn’t shown signs of appearing. However, with interest rates likely to stabilise at levels well above the average rate for the past decade, consumers seem to be catching on to the idea that in this volatile world, inflationary pulses are likely to return. This is a fundamentally different backdrop to the pre-pandemic years, warranting a degree of caution in chasing some of the frothier valuations, healthy diversification and paying heed to the occasional reality check.”
