Stock Take

Those hoping inflation figures were now firmly travelling down towards their 2% target were given a rude awakening last week, as UK figures revealed a small increase in December.

According to the Office for National Statistics (ONS), inflation in the UK increased slightly between November and December, up from 3.9% to 4.0%.

Although this was only a small increase, it was also the first time the pace of inflation had gone up in 10 months.

It was primarily driven by new tobacco duties the Government announced during the Autumn Statement.

Hetal Mehta, our Head of Economic Research, explained what this might mean: “After coming in weaker than expected in November, UK inflation numbers for December surprised to the upside, so we ended the year at 4%. Inflation will continue to fall through this year, but the trajectory will be bumpy.

“The Bank of England will need more convincing evidence of inflation getting sustainably to 2% before signalling a willingness to cut rates. The third quarter of 2024 is still more likely than first half of the year for the beginning of the easing cycle.“

With the news suggesting the road to 2% inflation might be bumpier than many had hoped, the FTSE 100 fell over the week.

There was a similar story in the Eurozone, where equities fell on fading hopes of an interest rate cut as early as March. These hopes had been building as inflation fell over 2023, however last week a number of members of the European Central Bank (ECB) pushed back on the idea.

Christine Lagarde, president of the ECB, told Bloomberg: “There is still a level of uncertainty and some indicators that are not anchored at the level where we would like to see them.”

Although the next move is still widely anticipated to be a cut, this is now not expected until later in the year. Nevertheless, investors will be keeping a close eye when the ECB meets on Thursday. Any hint at when interest rates could change will be carefully analysed across the market.

In the US, those who followed markets in 2023 will have seen a familiar story last week, as technology stocks led growth across US indexes.

Artificial intelligence (AI) optimism fuelled by expectations of significant earnings growth over the coming years has underpinned that momentum, and last week saw further strong performance from a number of companies associated with it.

The S&P 500 rose by 1.2% in local currency terms with the tech dominant NASDAQ index jumping by 2.3%. Those moves came despite a retreat in Federal Reserve (Fed) rate cut hopes for this year, which have moderated on the back of above forecast inflation data.

The situation remained complicated in China, where the Shanghai Composite index declined for an eighth time in nine weeks. Although 5.2% GDP growth in the last three months sounds strong compared to Europe, it was also slightly below expectations.

Sentiment was also likely hurt by the ongoing property market struggles, as well as news around the Chinese population shrinking by over 2 million in 2023.

While the economic and demographic situation remains challenging, Martin Hennecke, Head of Asia Investment Advisory and Communications at St. James’s Place, noted there remained regulatory and technological developments could help Chinese company valuations.

He noted: “With China observers focused on GDP data last week, many investors seem to be unaware of the security regulator’s (CSRC) recent drive to promote shareholder value by pushing companies to raise dividend pay-outs and facilitating stock buy-backs – akin to a similar initiative we saw in Japan that helped drive the Nikkei 225 to a 34 year high the prior week.”

Wealth Check

How do you imagine your future? Cruising the Norfolk Broads by narrowboat, or relocating to the Bahamas? Maybe you’ve decided that you’d like to start that micro business you always dreamed of, or move closer to family?

As humans, we’re hard-wired to live in the present – it’s part of our survival instinct. But we all need to be clear about the future life and lifestyle we want if we’re going to get there.

As we get older, our priorities and our goals often shift, and getting them clear in our head can be elusive. You don’t need to make a split decision, and you will want time to reflect. But you don’t want to go into retirement without thinking about how you want to spend the rest of your life.

Some personal goals are linked to life milestones: stopping work before we’re 60 or starting a family. Others are based on our dreams and ambitions; learning to fly or starting a small business later in life. We might want to give our children the best education we can, go travelling with them, or leave them a good legacy.

Some people have the good luck to see their goals quite clearly. But for most of us, goals change the more years we live. What we’ve learned through helping people achieve their life’s ambitions, and goals, is that the really important personal goals that you set should be rooted in your personal values.

For example, many of us are passionate about protecting the planet, fighting poverty, or investing responsibly.

Understanding what you believe in, makes it simpler and clearer to set goals. Those goals are the foundation of every personal financial plan. As financial advisers, we spend a great deal of time listening to our clients, helping them decide what’s important to them, before even starting to create the plan that will get them there.

We all have different goals, which is why any financial plan should be individually tailored to you.

In The Picture

December’s UK inflation figures offered a reminder that the battle against inflation isn’t over. That said, it’s worth looking at what is driving the numbers – in this case new duties on tobacco.

The Last Word

“I can’t ask our supporters to volunteer their time and donate their resources if we don’t have a clear path to victory.”

Ron DeSantis drops out of the race to become the Republican candidate in this year’s US Presidential election.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

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