Market Update

US Inflation and Labour Data Shape Federal Reserve Outlook
This week, US inflation and labour market data took center stage as investors prepared for the Federal Reserve’s final policy meeting of the year, set to begin on December 17, with a rate decision announcement expected the following day. The Consumer Price Index (CPI) rose 2.7% year-on-year in November, while core inflation remained steady at 3.3%. On a monthly basis, CPI climbed 0.3%, up from 0.2% in October.
Adding to the focus on the labour market, the US Labour Department reported an unexpected rise in weekly initial jobless claims, reaching a two-month high of 242,000. Seasonal factors tied to the Thanksgiving holiday contributed to the increase, but continuing claims also rose, staying near three-year highs. This suggests a softening labour market, following last week’s report of a higher unemployment rate in November.
Despite steady inflation, weaker labour data has reinforced market expectations of a 25-basis-point rate cut at the upcoming Federal Reserve meeting, as policymakers balance signs of economic resilience with pockets of weakness.
UK Economy Contracts as Markets Await BoE Decision
UK stock markets ended the week slightly lower as investors digested weaker-than-expected economic data and a declining pound. The economy contracted by 0.1% month-on-month in October, repeating September’s decline and falling short of forecasts for modest growth of 0.1%. The contraction was primarily driven by reductions in production and construction activity, which some analysts attributed to a pre-Budget pause in activity ahead of the Autumn Budget on October 30.
Despite the economic slowdown, the FTSE 100 managed to post intraday gains, benefiting from the weaker pound, which supported earnings for UK-listed companies with substantial international exposure.
On the consumer front, the GfK Consumer Confidence Index rose to -17 in December, marking its second consecutive monthly improvement. Better personal finance expectations (+1) offered a glimmer of hope, although overall economic confidence remained subdued.
As the Bank of England (BoE) prepares for its final meeting of the year, markets widely expect policymakers to hold rates steady at 4.75%, citing persistent inflation and slowing growth as key considerations.
ECB Cuts Rates Amid Sluggish Growth
In Europe, the European Central Bank (ECB) lowered interest rates by 25 basis points this week, the fourth such cut this year, bringing the deposit rate to 3%. ECB President Christine Lagarde emphasized that while the disinflationary process is progressing, economic recovery remains sluggish, with growth projected at just 0.7% for 2024. Lagarde reiterated the ECB’s data-dependent stance, signaling flexibility in future policy decisions.
Meanwhile, political developments in France dominated headlines. President Emmanuel Macron appointed centrist François Bayrou as the new prime minister, the fourth individual to hold the position within a year. The move is seen as part of Macron’s efforts to stabilize his government amid ongoing political challenges.
Key Data and Policy Decisions on the Horizon
Looking ahead, markets are bracing for several critical data releases and central bank decisions. China is set to release industrial production and retail sales figures, while the UK will publish inflation and unemployment data.
In monetary policy, the Federal Reserve is expected to cut rates by 25 basis points, while the Bank of England is likely to maintain its current rate. However, the weak UK GDP figures have spurred speculation about potential action from the BoE if economic conditions deteriorate further.