Written by Cormac Nevin

Markets were challenged in the first trading week of 2024, perhaps recovering from the exuberance witnessed in the final two months of 2023. The MSCI All Country World Index of global equities was down -1.6%, while bonds, as measured by the Bloomberg Global Aggregate Index Hedged to GBP, were also down -0.8%. Much like over the course of 2023, markets are somewhat anxious about employment and inflation data, and whether they are cooling sufficiently to allow global central banks to firmly discard any prospect of future interest rate increases.

Certain economic data released last week did not help with this endeavour, and likely provided less rather than more clarity. Non-Farm Payrolls in the U.S., a measure of how many jobs the economy added, came in higher than anticipated at +£216k. This saw the unemployment rate tick down from 3.8% to 3.7%. However, this is essentially a first draft of the numbers – and it is interesting to note that the strength of the previous release was revised downwards from +£199k to +£173k. Downward revisions of initial data have been a persistent theme of 2023, and one that has the potential to continue. Markets tend to trade on the initial release, and less so on the revised numbers.

Another interesting, and somewhat conflicting, set of data for markets was the release of ISM (Institute for Supply Management) surveys of business conditions across the U.S. to attempt to gauge the economic climate in a maximally forward-looking way. The “diffusion indices”, which they released last week, survey hundreds of firms in multiple industries and ask whether conditions are improving or disimproving and how those responses are diffused throughout the sample set. These painted a less rosy picture of economic health, with the ISM Services Purchasing Managers Index (PMI) coming in weaker than expected, and barely in expansion territory. Even more significant, the ISM Services Employment Index (SEI) came in with one of the worst month-on-month changes in its history; weakening significantly into contraction territory.

Kale smoothies, couch-to-5k initiatives and similar remedies may be the order of the day this dry January, but the economic picture may be less healthy. Investors should however seek comfort in the fact that this should give central banks increasing freedom to prioritise supporting the economy over controlling inflation.


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