lc
The FTSE is having a tough week.
The FTSE 100 is down around 1.2% on the week so far while the rest of Europe and the US is trading fairly flat.
US
Right now, the American stock market is full of contradictions as we navigate the final inning of what’s been a stellar year.
Firstly, the technology-heavy Nasdaq Composite surged to a record high Monday while the Dow Jones Industrial Average fell for an eighth straight day, its longest losing streak since 2018.
In the middle, the S&P 500 rose to just 0.3% off its all-time high at the same time as it extended its streak of negative breadth, more stocks falling than rising, to an 11th day. That hasn’t happened since Dow Jones Market Data records began in 1999.
Big Tech’s impressive gains is one explanation for the mixed messages, while United Health stock’s struggles is another. Without the health insurer’s 4.2% fall, the Dow would have risen Monday.
The other takeaway from all the ambiguity is that the majority of stocks are struggling. The S&P 500 Equal Weight Index, which assigns each stock the same weighting, has fallen in 10 of the 11 trading days in December.
Value stocks have been beaten down, while growth stocks have performed well. The S&P 500 Value Index is down for 11 straight days—falling 4% in that time, while its growth index counterpart is up 4.6% over the same period.
The notable exception to that trend is Nvidia, perhaps the ultimate growth stock of recent times, which fell into a correction on Monday. The irony is that Nvidia’s inclusion in the Dow in November was supposed to give the index a high-flying growth stock.
The inconsistencies didn’t stop there. Not to be outdone, the bond market joined the party Monday. The 10-year Treasury yield rose to 4.4%, higher than it was before the Federal Reserve’s first interest-rate cut of the current cycle in September, even as traders expect another cut Wednesday. Inflation is likely to blame for that one, as well as fears that President-elect Donald Trump’s policies will add to price pressures.
The market is proving once again to be a strange beast but the theme of the year still seems to be prevailing - be in tech, or be out. This is a tough one to navigate for traders. We pride ourselves on being able to make consistent gains no matter the market climate, but when tech is flying, it just makes us look bad. We tend to look better when the market is flat, and we’re making money, that’s when the world needs us and our absolute portfolios. Maybe that will be 2025.
UK
Inflation accelerated to 2.6 per cent in November, highlighting the Bank of England’s challenge as it grapples with persistent price pressures and a stagnating economy. The rise in the consumer price index was above the 2.3 per cent recorded in October but in line with expectations.
Looking into the numbers, flour, cereal, pasta, couscous and milk all fell, as did fresh and frozen seafood, along with the broader fish sub-basket. That may suggest evidence of discounting by supermarkets in the UK’s very competitive grocery market.
Higher prices for motor fuels and clothing helped push inflation higher, according to figures from the Office for National Statistics. The increase comes ahead of a meeting of the BoE’s Monetary Policy Committee on Thursday at which it is widely expected to hold interest rates at 4.75 per cent, after reducing borrowing costs twice this year.
GDP has shrunk for two consecutive months, while business surveys point to weaker confidence and curtailed hiring intentions following Rachel Reeves’ tax-raising Budget in October.
But the rise in inflation and a pick-up in UK wage growth has quashed hopes of an interest rate cut at the BoE’s final meeting of the year. November’s CPI figure “extinguishes any lingering hopes of an interest rate cut on Thursday, while concerns over mounting inflation risks, including the recent spike in pay growth, mean that a February loosening is not a done deal,” said Suren Thiru, economics director at accountants’ body the ICAEW.
Even though the headline figure is what is posted, the month-over-month data gives us a slightly more accurate reading. The truth is that inflation only increased 0.1% in November, compared to 0.6% in October. Prior to that, it had remained fairly constant at around 0.2% which is close to the annualised 2% target.
Next month, last December’s 0.4% increase will fall off the board and be replaced by something around 0.2% so headline inflation will probably dip a touch to around 2.4% next month. It will then increase in January, and decrease in Feb and March. It’s not rocket science, but the papers will only give you a small part of the story.
Inflation is steady, but it’s also steady slightly above the 2% target which makes it hard for the bank to cut. However, inflation in the US has been consistently at around 0.2%-0.3% for the last 5 months, and they are in the process of cutting. The Bank of England should cut and need to cut, to stimulate the economy, even as Rachel Reaves attempts to stifle it. Unemployment will go up on the back of the National Insurance increase, as will prices – albeit temporarily. We need to ignore this as higher rates won’t help in this instance, but could actually hurt more.
Commodities
Cocoa prices have hit another record today, heading over $12,000 a ton and not far off tripling this year. Disease and extreme weather conditions across West Africa -- the heavyweight growing region -- have been to blame for causing a supply deficit.
Coffee wasn’t really in our crosshairs either earlier in the year but has moved there following a surge in prices at the year has progressed, mostly down to concerns about a reduction in output from Brazil.
For both commodities, however, like olive oil, there are hopes that the recent rallies in prices will boost production and crimp demand, therefore addressing some of the supply issues plaguing both.
Gold prices were also flat on Wednesday, as investors awaited clues on the Fed's outlook for interest rates next year.
Oil climbed as Kazakhstan pledged to comply with OPEC+ production quotas and rising US crude exports signalled firm global demand.
West Texas Intermediate advanced as much as 1.9% to top $71 a barrel. US crude exports rose 1.8 million barrels last week, reaching the highest since July, according to figures released Wednesday by the Energy Information Administration. The report also showed a fourth straight weekly decline in US oil inventories and a 3.18 million-barrel drawdown in distillate stockpiles.
“Stronger exports indicate an uptick in global demand, while strong draws in distillate are a very welcome reprieve from the sluggish industrial growth that has plagued most of 2024,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group.
Fed
Onto the Federal Reserve and the evening’s interest rate decision. The central bank in the US is set to cut rates for the third time this year, but it could be the last for a few months.
The US economy remains resilient, with the job market holding steady and economic growth forging ahead. But inflation’s progress to the Fed’s 2% target may have stalled in recent months. Put together, economic figures show the Fed doesn’t need to be in any rush to lower borrowing costs after this week — a stance communicated by the Fed’s leader recently.
“We can afford to be a little more cautious,” Fed Chair Jerome Powell said in New York earlier this month. “I feel very good about where the economy is and where monetary policy is.”
Powell will address reporters in a news conference at 2:30 p.m. ET (19.30 UK). Investors will be listening closely for hints that the Fed is leaning toward holding rates steady in the coming months.
Fed officials will also release a fresh set of economic forecasts, likely reflecting fewer rate cuts in 2025 than previously anticipated. In September, officials pencilled in four rate cuts for next year.
The Fed began to cut rates in September, starting with a bold half-point cut. Powell said the move reflected the Fed’s commitment to preserving the labour market’s health, appeasing some investors who feared unemployment could soon take off.
That is where we’re at with the week so far. More from us on the weekend.
Good luck for the rest of the trading week.
