The USA100 continues to be the best performing index, increasing by 0.90% and more than 50% in 2023 in total. The main price driver was the US inflation data which more or less read as per expectations. The US inflation rate has declined from 3.2% to 3.1% but the core inflation rate remains stubbornly high. Core Inflation has remained at 4.00% for a second consecutive month. According to analysts, inflation is not low enough to prompt a pivot in the first quarter of 2024. However, investors are increasing exposure to the stock market as a “soft landing” becomes more likely.
US30 Remains in the “Trend Zone” of Technical Analysis!
Even though the best-performing asset by far is the USA100, the asset experiencing the best performance in terms of components is the US30. The USA100 saw 68% of its stocks increase in value whereas 73% of the US30 appreciated. Investors should also note that of the top 20 influential assets within the US30, only 1 stock declined. Chevron fell by 1.28%, and the best performing stock was Salesforce, rising 1.73%. In comparison, of the top 20 influential stocks within the USA100, 5 stocks declined.
As mentioned above, inflation read as most analysts were expecting, however it did not show any real signs of easing significantly over the next 2-3 months. The Federal Reserve policy makers will be able to discuss monetary policy issues tonight at 18:00 GMT. Journalists will without doubt ask Chairman Jerome Powell if he believes interest rates will be cut in the first half of the year. Without a dovish tone or a clear indication of a cut, the stock market may struggle to maintain momentum. However, most buyers are now investing, not due to a dovish policy, but due to the resilient economy and the likelihood of a soft landing.
One of the few stocks within the Dow Jones which have struggled is Procter and Gamble (holds a weight of 2.64%). Analysts expect the company’s revenue and earnings per share to remain stable, but shareholders have taken badly to the company decision to withdraw from certain countries where the Dollar is now too expensive. For example, the products will be withdrawn from Nigeria and Argentina. Furthermore, Berkshire Hathaway has also advised they have recently sold their shares in the company. Warren Buffet explained that the consumer goods market is recovering too slowly after the pandemic.
In terms of Technical Analysis, the price of the US30 is forming a downward facing retracement but is not showing any signs of strong momentum. Due to the weak momentum, and also bullish impulse waves forming, the instrument continues to remain in bullish territory. The price also continues to trade within the upper side of the Bollinger Bands and Regression Channels, again indicating bullish price movement. However, some traders may be concerned about the high price. These individuals may wait for a lower price or a larger retracement before speculating an increase.
The price throughout the day will be influenced by the Producer Price Index, which looks at inflation at the producer level. If the PPI reads lower than expected (0.2%), the Dow Jones could obtain short-term support. However, the main event will be tonight’s Federal Reserve Press Conference.
GBPUSD – The UK Economy Unexpectedly Contracts!
The price of the GBPUSD came under pressure this morning from the UK’s latest Gross Domestic Product. The UK’s GDP was expected to decline from 0.2% to -0.1%. However, the figure fell to -0.3%, the lowest since September 2023, sparking some doubt as to whether the BoE can hold rates “higher for longer”.
November’s poor GDP figures will not be enough to worry the Bank of England, however, December and January’s GDP figure will now become more vital! If next month’s data also disappoints, investors may start to price in a weaker monetary policy.
The US Dollar Index this morning is slightly higher but has not crossed above yesterday’s highs. However, the Pound is declining against all its main competitors. If the US Producer Price Index reads higher than expected, the Dollar could receive some much-needed support. In this case, the GBPUSD may decline further and break below the support level at 1.25130. In terms of technical analysis, the GBPUSD is trading below the 75-bar exponential moving average and at 42.00% on the RSI. Both indicate sellers are controlling the price movement and a downward trend remains a possibility.
Click here to access our Economic Calendar
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
It’s not often that we hear shocking news in the world of finance and economics, but recent events have caused a stir in the global market. The United Kingdom, often seen as a powerhouse in the European economy, has shocked the world with a significant economic downturn, while on the other side of the Atlantic, the United States appears to be defying the odds with its refusal to budge when it comes to inflation. This unexpected turn of events has many economists and investors scratching their heads and questioning what the future holds for these two major players in the global economy.
Let’s delve deeper into these recent developments and analyze what they could mean for the UK and US economies and the global market as a whole. We’ll also explore the potential benefits and practical tips for investors and discuss real-life case studies to gain insight into how these countries are weathering the storm of economic uncertainty.
UK Economy Shrinks: What Happened and Why?
In the first quarter of 2021, the economy of the United Kingdom shrank by 1.5%, marking the largest drop in over a decade. This sharp decline has been attributed to various factors, including the ongoing effects of the COVID-19 pandemic, Brexit, and the subsequent trade disruptions.
The UK’s GDP (gross domestic product) was hit hardest in the services sector, which accounts for approximately 80% of the country’s economic output. This includes industries such as retail, hospitality, and transportation, which have been heavily impacted by the pandemic’s restrictions and closures.
Additionally, Brexit has created significant trade disruptions, particularly with the European Union, which was the UK’s largest trading partner. This has resulted in higher costs and delays in exporting and importing goods, leading to a decrease in business activity.
US Inflation: A Stubborn Situation
While the UK is experiencing a slump in economic growth, the United States is facing a different issue – stubborn inflation. Inflation, which measures the general rise in prices of goods and services, has been on the rise in the US in recent months, prompting concerns among economists and policymakers.
In June 2021, inflation increased to 5.4%, the highest it’s been in over a decade and well above the Federal Reserve’s target of 2%. This surge has been primarily driven by rising energy and commodity prices, as well as supply chain disruptions. The unprecedented levels of government stimulus in response to the pandemic have also contributed to the inflationary pressures.
The Federal Reserve has stated that this spike in inflation is temporary and expects it to level off once supply chain disruptions ease. However, if inflation continues to escalate, it could lead to a rise in interest rates and a potential slowdown in the economy.
Practical Tips for Investors
The UK’s economic downturn and the US’s high inflation rates have shaken investor confidence, leading to market volatility and uncertainty. However, there are some practical tips that investors can keep in mind to navigate these challenging times.
1. Diversify your portfolio: A diverse investment portfolio is essential during times of economic uncertainty. This helps reduce risk and offers some protection against market fluctuations. Consider investing in a mix of stocks, bonds, and commodities to spread out your risk.
2. Keep a long-term perspective: While it’s tempting to make short-term decisions based on current market trends, it’s crucial to remember that investing is a long-term game. Stay focused on your investment goals and don’t make rash decisions based on the current economic climate.
3. Stay informed: Monitoring the market and staying up to date on economic news and trends can help you make informed and timely investment decisions. Keep an eye on key economic indicators such as GDP, unemployment rates, and inflation.
Case Studies: How are UK and US businesses coping?
Let’s take a look at how two businesses, one in the UK and one in the US, are navigating these economic challenges.
UK Case Study: Retail Giants, Marks & Spencer
Marks & Spencer (M&S), one of the UK’s largest retailers, has felt the impact of both the pandemic and Brexit. The company’s sales dropped by 3.6% in the last quarter, primarily due to reduced store traffic and lower demand for clothing and homeware.
To cope with these challenging times, M&S has accelerated its digital transformation, expanding its online business and investing in the growth of its food delivery service. The company has also shifted its focus to a more localized supply chain, reducing its dependence on EU imports.
US Case Study: Tech Giant, Apple Inc.
With a strong presence in the global market, Apple Inc. has not been immune to the rise in inflation. The company has faced disruptions in its supply chain, impacting its ability to produce enough products to meet demand. However, Apple has been able to maintain its high-profit margins by raising prices on some of its products.
Benefitting from the increased demand for technology due to remote work and schooling, Apple’s revenue for the first quarter of 2021 was $89.6 billion, an increase of 54% from the previous year. The company’s financial success has allowed it to continue investing in research and development and expanding its product line.
In conclusion, the recent developments in the UK and US economies have sent shockwaves through the global market, leaving many investors and economists wondering what the future holds. While the UK’s economic downturn and the US’s high inflation rates pose challenges for businesses and investors, understanding the underlying factors and staying informed can help mitigate risk and navigate these uncertain times. With a diverse portfolio and a long-term investment approach, it’s still possible to weather the storm and come out on top.