Daily update
Daily update
- The last month of 2023 was marked by equity and bond rallies. The economic outlook did not really change, but the language of Federal Reserve Chair Powell did. Because Powell’s past policy errors comprehensively trashed forward guidance, investors can choose which guidance they wish to follow. Other Fed members trying to dilute the reaction to Powell have been ignored.
- A continued inflation slowdown is the main economic story for 2024. Enhancing real wage growth helps create a softish economic landing. However, central banks can claim only a small part of the credit for bringing inflation down. Transitory durable goods inflation ended automatically. Energy inflation was more a supply issue. Profit-led inflation is fading in the face of consumer rebellion. Higher rates slow inflation by slowing credit and raising unemployment. These effects have been very muted so far.
- The Red Sea will be a focus for investors, with more attacks on shipping in recent days. Reducing European demand for Asia’s durable goods lessens the economic impact of having to divert sailings.
- The data calendar is quiet—there is background noise courtesy of business sentiment polls. The UK BRC December shop price index showed slowing food price inflation as profit-led inflation retreats; this may not fully translate into official price data.
