Week ending 8th December 2023.

As you can see from the accompanying chart, markets ended the week mainly with gains.

In the Eurozone, GDP for Q3 contracted 0.1% – the first fall of its kind since Q4 of 2022. Breaking down the official figure, household consumption expenditure provided gains to GDP, increasing by 0.3%, as did Government final consumption expenditure, which also rose by 0.3%. With regards to factors pulling the region’s GDP down, both data and commentary from economists pointed to a notable decline in inventories in the quarter and weaker economic sentiment. In line with comments recently expressed by ECB President, Christine Lagarde, market spectators foresee a consequential slowing of spending growth in the fourth quarter before its growth in general then ticks up again in 2024.

Heavily anticipated US labour market data on Friday revealed that the unemployment rate fell to 3.7% in November 2023 down from 3.9% in the previous month. This marked the lowest rate since July and came in below expectations. In addition, data showed the economy added 199,000 jobs in November 2023, surpassing the 150,000 added in October.

The labour market has remained robust even as the Federal Reserve has increased interest rates by 5.50% since early 2022 and has played a crucial role in maintaining overall economic stability this year. Markets were somewhat disappointed with the data with many hoping to see signs of the labour market cooling, a sign that the Fed’s high interest rates are tempering inflation, allowing them to consider how much longer rates will remain at restrictive levels.

Japan’s GDP figure on Thursday came in below expectations. In Q3, GDP was revised to an annualised -2.9% versus the preliminary -2.1%. The decline was led by a softening in personal consumption, likely to have come about due to the continued decline in real disposable income. However, the Bank of Japan’s Governor Kazuo Ueda announced on Thursday that next year the Bank would be taking steps to scrutinise wage growth outlook and the strength of domestic demand, using this to steer monetary policy.

Coming up next week markets readily await key interest rate decisions from the Fed, BoE and ECB. Markets are currently expecting policymakers to maintain current rates. Also, to come next week we have US CPI, PPI and retail sales. In the UK we are expecting labour market data, unemployment rate and GDP MoM for October. We are also expecting industrial production and retail sales from China.

Nicola Tune, Portfolio Specialist