Macroeconomics

The January US consumer price index (CPI) data came in stronger than expected with core month-on-month figures coming in at 0.4 % (0.3% expected) and year-on-year figures at 3.9% (3.7% expected) but unchanged from December’s 3.9% print.

Next week markets will receive January Consumer Price Index (CPI) inflation prints from the US and the UK, which will no doubt be widely followed. In the US, the Bloomberg consensus is for a significant drop in headline CPI from 3.4% to 2.9%, while core is expected to decline by a less spectacular 20 bps from 3.9% to 3.7%. For the UK, consensus is for a small increase in CPI inflation from 4.0% to 4.1%.

The long-awaited Personal Income and Outlays report for December was released last Friday. This piece produced by the U.S.’ Bureau of Economic Analysis contains information about personal income, savings rates and very importantly the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge of the economy.

Federal Reserve Governor Christopher Waller gave a speech on November 28 titled: “Something Appears to Be Giving”, where he laid out the reasons why he is becoming more confident of the Fed’s ability to bring inflation down to its 2% target. 

With most central banks presumably at highs in terms of monetary policy rates during the current cycle, the focus has rightly shifted to the timing of the first cut. 

December’s CPI inflation report showed numbers slightly ahead of consensus in the US. On a month-on-month basis, headline CPI came at 0.3% compared to a Bloomberg consensus of 0.2%, whereas core CPI figures were in line with said consensus at 0.3%.

We recently highlighted in our 2024 outlook our expectations of significant inflows into fixed income to be an important technical driver of performance in the year ahead.

The solid end to 2023 for financial markets has influenced a positive start to 2024.

The direction of monetary policy rates going forward is more clear, following the Federal Reserve's release of its new summary of economic projections and the dovish remarks of Jerome Powell.

Following October’s encouraging US CPI report and the subsequent comments from Federal Reserve officials, financial markets now anticipate that the Fed has completed its rate hiking cycle having reached terminal rates.

After a horrible year for financial markets in 2022, the macro-outlook for 2023 had a lot of consensus views, with most predicting a much better year ahead, helped by supportive rate cuts from central banks and positive returns from both government bonds and credit.  

The cuts are coming as the cycle of interest-rate hikes ends. In his latest blog, George Curtis discusses how falling inflation, weaker job reports, and signs of a European recession are reshaping expectations for interest rates.