Football fever saves UK from recession
The new year is proving to be a happy one for almost all asset classes and regions. The FTSE 100’s intraday all-time high of 7903.50 was less than 100 points away on Friday, and we were closer than we were the previous week. The global financial press tell us markets are stronger because we should be positive about a likely easing in monetary policy, and this easing should take place because – as business leaders say – conditions are awful.
Hot commodities
Last year was a strange one for commodity markets. Russia’s invasion of Ukraine brought the biggest disruption to global energy supplies in a generation, causing oil and gas prices to soar over the first half of 2022. Sharply higher prices then destroyed demand and severely dampened the outlook for global growth. Oil and gas had a much weaker second half, as supply chains readjusted, and demand fell significantly. Even European gas prices, which rose to eye-watering levels after President Putin turned off the tap, are substantially lower than their mid-year peak. Policymakers, analysts and capital markets predicted a harsh winter for Europe, with heat and energy rationing amid acute undersupply. However, this winter is now predicted to be one of the continent’s warmest on record, taking the edge off fuel prices and dampening the commodity outlook.
European wage inflation
n the previous week, the European Central Bank (ECB) got some respite. Eurozone inflation came in at a 9.2% annual rate in December, lower than November’s figure and below economists’ expectations. Price increases are still uncomfortably large, but inflation seems to be trending down for the first time since late 2020. Perhaps more encouraging is that ‘core’ inflation – a measure which excludes food and energy – is still a tad lower in the Eurozone than in the US. Core inflation is supposed to be more closely linked to internal demand dynamics, and therefore a good indicator of what inflation will be in the near future.