The numbers for the week – 19 Feb 24

The numbers for the week – 19 Feb 24

Markets last week

  • Economic data drove market performance last week, causing nauseating fluctuations. Most regions’ equity markets finished in positive territory. The US equity market finished in the red
  • US Treasury yields surged on Tuesday due to a robust inflation report, leading to a downturn in US stock prices and increased market volatility
  • Retail sales data towards the end of the week stabilised the market, highlighting the need for caution in interpreting economic data
  • Despite a partial reversal in Treasury yields due to soft retail sales and dovish comments from the US Federal Reserve (Fed), inflation concerns persisted, further lowering expectations for Fed rate cuts
  • UK equities had a positive week, driven by consistent data indicating a slowing UK economy, easing inflation, and the possibility of future rate cuts by the Bank of England (BoE)
  • The UK entered a technical recession, with two consecutive quarters of negative GDP growth
  • UK services inflation ticked higher, highlighting it as a remaining concern for the BoE
  • Next week is a quiet week regarding economic data releases. Though the minutes are due to be released from the previous Fed and European Central Bank (ECB) meetings, neither are likely to move markets.


Economic data was the driver of market performance last week. Unfortunately deciphering the economic data from the past week induces a similar nausea to a merry-go-round, with the equity market experiencing a mild case of whiplash. The week began quietly, but on Tuesday, US Treasury yields surged, led by the shorter-dated part of the curve, following the unexpectedly robust US Consumer Price Index (CPI) report. This surge was the largest daily increase in front-end yields (known as ‘bear-flattening’) since the volatility surrounding the banking turmoil last March.

Headline and core CPI for January came in slightly hotter than economists had anticipated, which triggered a downturn in US stock prices, a noticeable increase in Treasury yields and a spike in implied volatility (a measure of fear in financial markets). The narrative shifted towards the end of the week as retail sales data indicated subdued economic activity, stabilising the market. Caution is warranted when interpreting incoming economic data, given the inherent noise, but the market in recent months has significantly reacted to relatively mild economic surprises.

Headline and core inflation came in at 0.3% and 0.4% month-on-month respectively vs economists’ expectations of 0.2% and 0.3%. While the headline inflation figure, subdued by falling gasoline prices, continued its downward trajectory from the previous year, slipping to 3.1% from 3.4% in December, the core index rose by 3.9%, the same as a year ago. Although this represents an interruption to the disinflationary trend and was a reality check for markets, inflation is now significantly below the peak of the cycle in September 2022, and from our perspective, the final progress required to bring inflation back to the Fed’s 2% target was always going to be more difficult and volatile.

The sell-off in Treasury yields was partially reversed due to soft retail sales and dovish comments from Fed officials later in the week; however, the lingering inflation concerns persisted, driving expectations for Fed rate cuts lower. The rise in yields was not isolated but part of a broader trend this year, with the curve bear-flattening in response to diminishing expectations for Fed rate cuts. The market-implied probability of a rate cut in March has fallen from 85% early in the year to close to 10% currently.

Across the Atlantic, UK equities had a better week, with the FTSE All-Share rising 1.7%. Economic data was more consistent in conveying a slowing UK economy – counterintuitively, a positive for equities, as inflation continues to be the most prominent concern and the subsequent implications for monetary policy. Inflation cooled more than expected and UK GDP growth in the fourth quarter came in at -0.3%. As economic growth in the third quarter was also negative, this means that the UK has now entered a technical recession, with two consecutive quarters of negative growth.  This data makes it easier for the BoE to cut rates later in the year, which would benefit the UK’s stock market, all else being equal.

Despite softening inflation, investors have been broadly surprised in recent months of the resilience of UK industry. Manufacturing and industrial production has surprised to the upside and Purchasing Manager’s Indices – a good leading economic indicator – have also been hotter than anticipated: the UK’s services sector in particular has been firing on all cylinders. The most prominent remaining concern for the BoE is now services inflation, which remains too high for the BoE’s comfort – and until further progress is made here, the central bank is unlikely to ease policy.

The week ahead

Tuesday: US inflation

Our thoughts: Inflation in January is expected to have softened from 3.4% in December to 2.9%. Sticky core inflation is also expected to have softened, from 3.9% to 3.7%. If this is the case, market participants will breathe a collective sigh of relief, as the data points to potential rate cuts heading into the summer. The risk is if inflation comes in hotter than expected, which would result in increased uncertainty and market volatility; potentially disrupting the equity market rally.

Wednesday: UK inflation

Our thoughts: Headline inflation in the UK is expected to rise slightly in January, as services and energy component prices have risen. The inflation outlook in the UK is more clouded than the US, which transfers through to the outlook for UK interest rates and makes the Bank of England’s (BoE) job more difficult. The broader trend, however, continues to point to disinflation and rate cuts later this year.

Thursday: UK GDP

Our thoughts: Economists anticipate the UK economy grew 0.1% last year but shrunk at an annualised rate of -0.1% in the fourth quarter. This would represent two consecutive quarters of negative GDP growth, taking the UK economy into a technical recession. Although the BoE’s own forecasts are slightly more optimistic, the weak economy makes the case for the BoE to ease policy this year ever stronger.

The numbers for the week

Sources: FTSE, Canaccord Genuity Wealth Management

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