Market Update

Following the New Year holiday, markets experienced a quiet and abbreviated trading week with limited data. However, we gained insights into the US labor market alongside the latest inflation figures from the eurozone and Ireland.
In December 2023, headline inflation across the Eurozone rose to 2.9%, rebounding from November's two-year low of 2.4%, primarily due to reduced government subsidies for electricity, gas, and food. Conversely, core inflation, excluding volatile food and energy costs, eased slightly from 3.6% to 3.4%. While lower oil prices in 2023 contributed to this trend, the expiration of energy price caps in December drove up consumer costs, impacting inflation. The upcoming January inflation data is anticipated to provide more informative insights.
In Ireland, the EU Harmonised Index of Consumer Prices (HICP) increased by 3.2% in December, up from November 2023's 2.5% year-on-year rise. Energy prices are estimated to have decreased by 2.6% during the month and by 6.4% over the 12 months leading up to December 2023. Meanwhile, food prices remained stable month-on-month and rose by 5.2% over the preceding 12 months.
This data confirms the European Central Bank's (ECB) forecast that inflation bottomed out in November and is expected to hover in the range of 2.5% to 3% throughout 2024 before decelerating in 2025. These figures will likely influence the ECB's policy decisions this year, with expectations leaning towards rate cuts before summer.
In the US, the labor market has defied recession predictions, displaying resilience throughout the economic cycle. December 2023's data revealed that the US workforce added 216,000 jobs, surpassing expectations of 164,000, primarily driven by government hiring.
The unemployment rate remained unchanged at 3.7% in December 2023, matching the previous month and slightly below the market consensus of 3.8%, influenced by a slowdown in new entrants into the labor force. This robust job growth contrasts with concerns of an economic downturn, as the labor force navigates the impact of higher interest rates resulting from the Federal Reserve's inflation-focused measures.
Looking ahead to next week, investors can expect additional economic data. This includes Eurozone retail sales, economic sentiment, and the unemployment rate, alongside US balance of trade figures and the latest CPI data. In China, updates on inflation, Producer Price Index (PPI), and balance of trade will be released. Finally, on Friday, UK GDP data for November will be published.