ACM Update 16-12-24
Sterling-Euro moved up to a 30-month high mid last week, before retracing by over 1% by the close on Friday. The move upwards was based on sentiment that the Bank of England will be cutting interest rates less often than their European counterparts over the next 12 months. The ECB changed their tone slightly though, following a Thursday rate cut.
The final full trading week of 2024 is still a busy one. Interest rate announcements from the Federal Reserve and Bank of England arrive on Wednesday and Thursday respectively, amidst a host of other important UK data releases. The Christmas break isn’t here quite yet!
Aston Christmas Opening Hours:
As always, the Aston offices will be closed for the three UK public holidays over the festive period on the 25th/26th December & 1st January.
24th December – Open until 4pm
25th December – CLOSED
26th December – CLOSED
27th December – Open as usual
30th December – Open as usual
31st December – Open until 4pm
1st January 2024 – CLOSED
2nd January 2024 – Open as usual
We start off in Europe this week, where the European Central Bank delivered their fourth interest rate cut of 2024. Another 0.25% cut was very much as markets had expected, even if there had been a few looking for a larger reduction in the deposit rate.
Focus for the committee remains less about inflation, but now centred around getting economic growth trending the right way. Political turmoil in Germany and France, the two strongest Eurozone economies, since the last policy meeting in October has certainly not helped. That combined with the Trump election victory and his promise of hefty EU tariffs, is not painting the prettiest picture for the new year in the bloc.
Christine Lagarde’s subsequent press conference confirmed that the EU economic recovery is slower than expected, and that wages, profits and geopolitics are among the upside risks to inflation. She even went as far as to say that the risks to inflation are now “two-sided” especially in light of potential Trump tariffs.
Going into the meeting, expectations were for 150 basis points of rate cuts in Europe during 2025. However, post the event, the Euro rallied off the back of the ECB President’s comments. The single currency recovered over 1% in the second half of Thursday and throughout Friday, retracing from the multi-year lows vs the Pound seen on Wednesday.
Aside from the excitement around the ECB meeting, there wasn’t much else of note. German month-on-month inflation fell, as did the French equivalent. On which note, Emmanuel Macron duly delivered France with their fourth Prime Minister of the year.
Movements on Sterling-Euro, including Wednesday’s 30-month high, can be seen in the chart below:
If growth is of concern in the Eurozone, then the UK doesn’t have much to shout about either currently. October’s GDP figures were published last week, showing a -0.1% fall during the month. This matches the same drop seen in September. The fall in both months was attributed to (you guessed it) the Government’s gloomy budget reducing an appetite for spending.
Businesses and consumers were reported to have held back on their expenditure, amidst nerves about what the 30th of October Budget was going to hold. Chancellor Rachel Reeves described the figures as “disappointing”, but suggested the Government have “policies to deliver long-term economic growth”. Watch this space.
In fact, the full range of UK data releases at 7am on Friday morning were all disappointing and well under market expectations. Construction output, industrial production and manufacturing production all showed a sizeable monthly drop, whilst trade balance figures were much worse than expected too.
The National Institute of Economic & Social Research (NIESR) also suggests that the economy has flatlined at 0.0% growth over the last three months. Surely not another winter mini-recession? The whole set of Friday figures helped knock sterling back downwards after positive moves earlier in the week.
All eyes for now will turn to the Bank of England for their latest rate announcement this coming Thursday. A pause in their cutting cycle seems the most likely outcome for now, before Andrew Bailey and his colleagues head off for the Christmas break.
Another bank with an interest rate decision this week is the US Federal Reserve, with the announcement on Wednesday evening (UK time). Before that the latest inflation figures for November were released last week, with CPI inflation nudging up to 2.7%. This was in line with forecasts and follows a move up from 2.4% to 2.6% the month before.
Whilst the consumer inflation (CPI) showed a slight gain, the producer figures in the form of PPI grew by much more than expected. This caused concerns that inflation across the country may be heading back up over the coming months, with producer prices generally a leading indicator of what is to be passed on to consumers.
The Dollar therefore recovered some ground lost recently, as the above mindset has softened rate cut expectations slightly throughout 2025. Movements last week can be seen in the chart below:
The week ahead:
Monday – ECB Lagarde speech (08:15 UK time), FRA/GER/EU/UK/US Manufacturing & Services PMIs (08:15-14:45)
Tuesday – UK Unemployment/Average Earnings/Claimant Count (07:00), German & EU Economic Sentiment (10:00), Canada CPI inflation (13:30), US Retail Sales (13:30)
Wednesday – UK CPI inflation (07:00), EU Final CPI inflation (10:00), Federal Reserve rate announcement (19:00) & Press Conference (19:30)
Thursday – Bank of Japan rate announcement (03:00), Bank of England rate announcement (12:00), US Unemployment Claims (13:30)
Friday – UK Retail Sales (07:00), Canada Retail Sales (13:30), US Core PCE Price Index (13:30)
As mentioned, a busy final five-day week of 2024! Inflation and interest rates have been the name of the game this year, and that remains very much the case to the very end. Last week saw G10 economies providing a range of policy decisions. The ECB cut 0.25%, the Reserve Bank of Australia held, whilst the Bank of Canada and Swiss National Bank both reduced interest rates by 0.5%.
Wednesday’s Federal Reserve meeting is expected to produce another quarter-per-cent rate cut, but beyond that the picture is less clear. Until very recently, circa 150 basis points of rate cuts were projected for 2025 from the US, but inflation ticking back up and the proposed Trump tariffs threatening to exacerbate the issue, could reduce those 150. More light on their ongoing policy thoughts will not only be awaited, but very much expected.
UK releases are all being squeezed into the next five days. Monday has PMI data, Tuesday Unemployment, Wednesday Inflation, Thursday the interest rate announcement itself and Friday Retail Sales. A very busy week.
Aside from the rate decision, inflation is perhaps the most significant given how it is intrinsically linked to monetary policy. It is forecast to tick back up from 2.3% in October to 2.6% in November. Any sizeable variation on that may cause some changes for the Bank of England meeting on Thursday, but for now the committee are forecast to keep interest rates on hold, likely with a 7-2 split.
The Eurozone too has confirmation of Final CPI data, but this release isn’t expected to cause much movement. The range of Eurozone PMI releases on Monday are perhaps of more importance.
As we swing into the festive period, do keep in touch with the Aston team for your ongoing requirements. Lower liquidity during Christmas can mean some volatility when least expected, so markets may not be as flat as one would think.
The Aston team wish all our clients and partners a Merry Christmas and we look forward to continuing to work together throughout 2025.
Have a great week and Merry Christmas.
