Podcast: Inflation data and UK GDP

Created: 8th January 2024

So, what do we know?

(A forex, index, and commodity market review)

Since the end of October last year, US equities have been on a tear as the Federal Reserve signalled it was likely at the end of its tightening cycle and that the next move in US rates would be down.

However last week’s move, albeit a shortened week due to the New Year’s Day holiday, saw equities fall on the week, breaking the best weekly run for US equities since 2004.


Weekly change (amount change and percentage change on the week)

FTSE              -67 -0.86%

DAX               -195 -1.10%

DOW             -153 -0.41%

S&P                -75 -1.57%

NASDQ        -513 -3.15%

NIKKEI         +113 +0.34%

Hang Seng  -545 -3.19%


US equities had closed out 2023 just shy of all times highs as optimism about interest rate cuts propelled stocks higher.

Despite 2023 starting with inflation still above central bank targets and with interest rates still climbing, developed world stock markets recorded extraordinary gains. For the record in 2023, the Dow gained 13.77%, the S&P500 +24.22% and the NASDAQ +53.75%. In Europe, significant gains were also recorded with the German Dax up 21.33% although the FTSE100 only gained 3.86% as this resource heavy index struggled in the wake of China’s woes.

The last eight weeks of 2023 were the most spectacular. Since the FED signalled in its previous meetings minutes that interest rates had peaked and that it expected to cut interest rates three times this year, the money markets pushed bond yields lower as the twin effects of falling inflation and the prospect of lower rates catapulted bonds higher and yields sharply lower. The yield on the key US 10-year bond touched 3.9%, having been above 4.2% at the beginning of December.

The CME Fed watch tool showed expectations of the first-rate cut being pushed earlier this year, with the probability of a cut to 5 / 5.25% band rising to 73.5% at the start of last week.

The difference between what the Fed had been saying and what the markets expected had widened but often the FED would be more cautious and only gives updates at its monthly meetings whereas the market rates are trading all the time, reflecting the shift in traders and investors expectations.

Reality dawned on the markets last week as the minutes from the last FOMC meeting held on December 13th stated that FED officials expected interest rates to stay high “for some time”. Whilst those three words were picked up immediately by analysts, the FED backed this up by saying it “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee’s objective”. By the close last Wednesday, the probability of a rate cut at the March meeting had fallen to 63% from 73.5% before the meeting.

The Fed are effectively signalling that interest rates are unlikely to be cut in March although the CME Fed watch tool still implies a greater than 50/50 probability. The markets are now primed to react positively to weak economic data whilst strong economic data is likely to dent confidence that the FED could cut rates as early as March.

The Monthly Non-Farm Employment data were stronger than the consensus on most measures, but detailed analysis suggests the employment market is normalising. Equities initially fell following the NFP report and then rallied following a weaker than expected ISM Services PMI report. Despite Friday’s gyrations, equities closed out the week with weekly losses for the first time since the 29th of October.


EURUSD -0.96 -0.87%

GBPUSD -0.07 -0.05%

USDJPY +3.62 +2.57%


The US Dollar tends to find support in the new Year and last week’s move was following that playbook. The minutes from the last FOMC meeting supported the US Dollar as traders factored in the diminished probability of a rate cut in March. Inflation data from the Eurozone came in at 2.9% in December , the first rise in inflation in 6 months and slightly lower than the 3% consensus forecast.


Gold -18 -0.876%

UK OIL +1.66 +2.16%

US OIL +2.38 +3.33%


Gold closed out 2023 above the psychological $2,000 level but posted a modest decline last week following the more hawkish comments from the Federal Reserve. Gold, more than anything else, tracks the US Dollar and interest rate expectations, so any delay to traders’ expectations regarding the timing of the FED’s first interest rate cut will likely dent Gold’s allure.

Oil reacted firmed with the ongoing risk to shipping through the Red Sea as major shipping lines continued to divert cargo around the Cape of Good Hope, adding delay and costs to freight. US Secretary of State, Anthony Blinken, is visiting UAE and Saudi Arabia to try and head-off an escalation in the Israeli / Hamas war in Gaza. If the war does escalate and bring in Hezbollah and other militant groups, then the upside risk to oil is significant.


What don’t we know….yet?

(What traders need to look out for in the week ahead)

The first full week back this year with a less hectic economic calendar. The focus this week is on inflation and monthly GDP in the UK.



Japan Bank Holiday in celebration of Coming-of-Age Day.

Switzerland CPI inflation data. Consensus was for a month-on-month fall. Data came in unchanged from the previous month. CHF sensitive.



No key data releases



Australia CPI Inflation. Expected at 4.5%, last 4.9%. One of the few developed economies still experiencing a fall in inflation, because inflation ticked higher in October to 5.6%. AUD sensitive

UK Governor of the bank of England, Andrew Bailey, testifying about Financial Stability Report before treasury Select Committee in UK Parliament. Unlikely to cause any waves.



US CPI Inflation. Headline inflation likely to rise as the falls in the latter part of 2022 fall out of the calculation. Headline expected at 3.2% with the Core reading expected to dip below 4% year-on-year, the first time since May 2021 when prices started accelerating. USD and US sensitive to this release.



China CPI Inflation. A different picture to the inflation readings from western developed economies. Deflation remains with prices falling, although most economists expect this to be temporary. Year on year expected at -0.4%

UK GDP. November Monthly data. A rebound to +0.2% following weaker than expected manufacturing activity. This data will form part of the Q4 GDP data to be released early next month could signal that the UK has entered a technical recession. Whether it does or not, growth is expected to remain weak. Backward looking data. GBP sensitive .


US 4th Quarter earnings. Banks releasing with focus on level of bad and doubtful debts.

BlackRock, Citigroup, JPMorgan Chase, Wells Fargo, BNY Mellon and Bank of America