25 January 2024
If you are covering the latest news in financial markets, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
"Amidst a busy earnings calendar, the European Central Bank (ECB) meets today in what is expected to be another uneventful meeting where it is made clear that interest rate cuts are not yet on the horizon and the wage inflation will be carefully watched in the months ahead. With unemployment running at a record low of 6.4%, wage inflation now almost double headline inflation, labour market signals will be important. Purchasing Manager’s Index (PMI) data yesterday showed a slight uptick in in hiring, following two months of declines, so it's not clear that wage inflation is about to take much of a tumble, particularly given workers are keen to restore the purchasing power that many saw eroded over the past two years.
"More widely, yesterday’s PMI release by S&P Global was broadly positive as an indicator of growth not only in the UK but also in the US, where the manufacturing indicator returned to growth, and to a lesser extent, Europe, where it appears the rate of contraction in business activity is slowing. This data can also be a good signal of inflationary drivers in the system; last month the UK report highlighted rising inflationary pressures in the services sector which subsequently showed up in the inflation print. This month, the UK report highlighted renewed cost pressures in the manufacturing sector with factors such as higher freight rates and lengthening supplier lead times, themselves creating a cost headwind, in contrast to Europe where manufacturing appears to be more sheltered from these effects. The service sector however did report an upturn in selling prices in signs of inflationary pressures still in the system.
"Mainland China stocks were buoyed by news of a 50bp cut in banks reserve ratio, double the size of the previous cut in September and the fourth successive easing since December 2022. Whilst investor sentiment has been poor, reflecting the run of bad news from real estate, the consumer economy, deflationary figures and mis-steps in regulation, Chinese equities look increasingly good value for long-term investors with the recent uptick in corporate profitability relative to the cost of capital potentially signalling a turning point."
