Week ending 5th January 2024.

It was a quiet and short trading week for markets after the New year holiday. Data was thin on the ground, but we did get some insight into the US labour market alongside the latest inflation data across the eurozone and Ireland.

The headline rate of inflation across the Eurozone rose to 2.9% in December 2023, from November’s two-year low of 2.4%, primarily influenced by a reduction in government subsidies for electricity, gas, and food. On the other hand, core inflation, excluding the more volatile food and energy costs, saw a slight easing from 3.6% to 3.4%. Oil price drops in 2023 contributed, but caps on energy prices ending in December raised consumer costs, impacting inflation. January’s inflation print is expected to be more informative.

Over in Ireland, the EU Harmonised Index of Consumer Prices (HICP) rose by 3.2% in December, up from the 2.5% year-on-year increase in November 2023. Energy prices are projected to have fallen by 2.6% in the month and decreased by 6.4% over the 12 months to December 2023. On the other hand, food prices remained the same in the last month and increased by 5.2% in the last 12 months.

The data confirms the European Central Bank’s (ECB) prediction that inflation bottomed out in November and will now flatline in the 2.5% to 3% range through 2024, before slowing again in 2025. The data will influence the ECB’s policy decisions this year, with expectations of rate cuts before summer.

Over in the US, the resilience of the labour market has consistently defied predictions for a recession, maintaining a surprising trend throughout this economic cycle. The latest data showed the US workforce added 216,000 jobs in December 2023, surpassing the expected 164,000, driven mainly by government hiring.

The unemployment rate held steady at 3.7% in December 2023, unchanged from the previous month and slightly below the market consensus of 3.8%, influenced by a slowdown in new entries into the labour force. This positive job growth contrasts with concerns of an economic downturn, as the labour force resiliently navigates the impact of higher interest rates following the Federal Reserve’s inflation-focused measures.

Coming up next week there is some more economic data for investors to digest such as Eurozone retail sales, economic sentiment, and unemployment rate. We are also expecting US balance of trade and the latest CPI data. Over in China, we will see the latest inflation, PPI and balance of trade data. On Friday UK GDP for November will be released.

Kate Mimnagh, Portfolio Economist 

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