Hello, and welcome to the last Astute Market Overview of 2023.

Following on from a strong November, so far December has been a strong month for many key equity markets and government bonds. Whilst we aren’t short-term investors, our updates cover times when markets decline, so it would be remiss of us if we didn’t mention the times when markets climb. Spikes in the stock market (such as we have seen recently) highlight how important it is for long-term investors to remain invested: a temporary sell-down to cash (with the intention of reinvesting at a later date) will mean that these climbs are missed by investors.

What’s been happening then? In this, the penultimate week before Christmas, we have been gifted a trio of central bank meetings – the European Central Bank, the Federal Reserve, and the Bank of Engand.

It was no surprise that all three central banks opted to hold interest rates steady to close out the year.

In the US, Consumer Prices Index (CPI) inflation was released whilst the Federal Open Market Committee met. The headline CPI in the US came in slightly lower than last month at 3.1%, and the Federal Reserve opted to hold interest rates. Following the meeting, the Federal Reserve released forecasts upgrading Gross Domestic Product (GDP), dialling back inflation projections, and forecasting multiple interest rate cuts next year. All welcome news for markets!

That’s the US, let’s turn to the Bank of England (BoE) first – their Monetary Policy Committee have scheduled meetings every 6 or 7 weeks. where they make decisions on monetary policy, including voting on interest rates. Their latest meeting was Thursday (which is this morning, as we film today). The central bank’s decision to hold the base rate at 5.25% was anticipated – with inflation heading in the right direction, and 5.25% already a restrictive level, a hike was unlikely, but with the fight against inflation not yet won, a cut would be too early.

UK markets appeared to be pulled in by the huge gravitational pull of the US and have started to price-in (or expect) interest rate cuts early in 2024. Up until recently, market expectations for interest rates were more aggressive than ours, now they have moved right through our thinking and ended of the other side – thinking that the BoE will reduce the base rate sooner than we think is likely – our economy has been harder hit than the US. UK jobs data released this week fuelled those expectations. Even though the central bank was trying to talk markets down from their expectations for base rate cuts next year, it will take a lot for the market to change its mind.

In the UK, there are always calls for seasonal workers over the Christmas period. To deliver parcels, serve Christmas lattes and turkey and stuffing paninis, or to dress up as Santa or his elves (whilst the real deal are working away in the North Pole). Reed Recruitment, “the UK’s #1 job site”, have reported that seasonal job listings were down 40% in October! UK vacancies and jobs data from the Office for National Statistics (ONS) revealed a cooling jobs market, with vacancies falling by 4.5% since the period June-August 2023, although vacancies are still way above pre-pandemic levels. There were also signs that wage pressure is easing. In real terms annual growth in total real pay came out at 1.3%, so whilst pay growth is coming down, we are still seeing above inflation wage increases. The reality behind these data will help the case for bringing down inflation, although we still think markets are too optimistic with their expectations.

As we are approaching the end of the year, this is our last scheduled Astute Market Overview for 2023. From everyone here at Astute Private Wealth and Astute Investment Management, we hope you have a Merry Christmas, and a happy New Year!

See you in 2024.