It looks we may be in for a rather late Santa Claus rally in the UK market with better than expected inflation numbers just published.
I was amused to see someone in government or the Bank of England saying that workers would need to accept lower pay rises before the central bank interest rate would come down. With many fixed rate mortgages at low rates coming to an end now, I can imagine many a home owner adopting the mirror position and unions also saying that as long as interest rates remain high, workers need large pay rises!
The sharper than expected drop in inflation without a large rise in umemployment, which is what is also happening in other major economies, further confirms that the bout of infaltion which is now tailing off was driven by supply side factors and central banks are likely to cause uneccesary recessions if they don’t take their foot of the brake and start a little stimulus before long.
Markets, I suspect, do not believe that the hawks on central banks committees are any more in the majority, so are anticipating rate cuts in 2024. The risk to equities is in fact the aforementioned potential recessions.
Fixed income assets are for that reason useful insurance at the moment – in fact something of a one-way bet.
My January monthly briefing will be the next publication from me, when I will look back briefly on 2023 and do some crystal ball gazing for 2024, like a true Janus.
Until then, I wish all my readers a peaceful, healthy and happy fortnight over the holiday season. And a nice fat portfolio valuation for December 31st!
