Welcome to the latest Astute Market Overview, a chance for us to provide an overview of what we have been watching in markets. The short period of time since our last update was a busy time for celebrations: Shrove Tuesday celebrations and the Carnival of Brazil ahead of the start of Lent, Valentine’s Day, National Day in Japan, the turn of Chinese New Year and President’s Day in the US.

Following all of the festivities, many key markets sat slightly higher, having been buffeted by data releases along the way.

In this overview, we’ll cover the outlook for China, UK economic growth, and UK and US inflation.

Let’s start with China, a region which we watch closely. In reaction to investors’ ongoing disenchantment with the region, this week security regulators in China worked to allay fears and stabilise the market by explaining they will heed advice and criticism given by investors.

In recent years, there have been high hopes for investments in Chinese companies, as strict lockdowns would surely lead to a booming reopening – domestic consumers with money to burn. However, this reopening wasn’t as strong as investors had hoped, and since, Government interference in the stock markets has unnerved investors, sending signals to foreign investors that the Government can intervene at any time.

This is an area we are watching closely. We believe China is a region with potential, but what will be the catalyst to make that happen?

In the UK, consumer prices index inflation (CPI) revealed that prices rose by 4% in January 2024 vs January 2023, which is the same rate as increase as December 2023 vs December 2022, double the 2% target. This was in the news headlines for merely a day, overshadowed by the release of gross domestic product data (GDP) exposing that the UK economy entered a technical recession in the second half of last year. This was due to two consecutive quarters of negative GDP growth – a 0.1% fall in Q3 2023 and a 0.3% fall in Q4 2023.

We’ve been chewing over the prospect of a recession in our commentary for a while, and whether it would be needed to bring down inflation, and now estimates have confirmed it (subject to revision). It’s key to point out that the data point to a weak recession, something that the governor of the Bank of England, Andrew Bailey, made very clear in recent interviews. This is a fall in growth, but by a very small amount.

When compared to other major economies, UK inflation isn’t coming down as fast, and the economy isn’t fairing as well. Whilst these two elements aren’t strictly under the control of Prime Minister Rishi Sunak, he did make economic growth one of his 5 pledges at the start of 2023 (alongside halving inflation by the end of 2023, which has been achieved). Although the government aren’t in control of the central bank’s decisions, they do provide a remit for the Bank of England laying out specific responsibilities.

We’ll be listening to what the chancellor has to say about these matters when he takes to the despatch box to deliver the Spring Budget in two weeks’ time, ahead of this year’s general election.

And finally, in the US, consumer prices index inflation appeared to reveal that the taming of inflation wasn’t as cut and dried as markets had hoped – at 3.1%, the higher-than-expected release sent markets tumbling on the day. However, the Federal reserve, who target inflation, prefer to watch the Personal Consumption Expenditures Price Index as a measure, which will be released next week.

Coming up, domestically we will have two weeks of leaks and speculation ahead of the Spring Budget, which we will be watching closely.

See you next time.