Written by Ilaria Massei

Data released last Wednesday show that, in December 2023, the UK faced an unwelcome rebound in the annual inflation rate, reaching 4% and surpassing market predictions. This increase was largely due to alcohol and tobacco prices, which rose by 12.9%. The core inflation rate, which excludes some volatile items like energy and food, stood at 5.1%, slightly above the forecasted 4.9%. However, retail sales declined by a greater than expected 3.2% in December 2023, following a revised 1.4% increase in the previous month. The current picture in the UK suggests that the restrictive monetary policy is affecting consumers, while inflation remains well above the target of 2.0%.  This will undoubtedly present some challenges for policymakers going forward.

Elsewhere, the US witnessed a significant month-over-month increase of 0.6% in retail sales for December 2023, beating forecasts of 0.4%. This upswing, driven by a 1.2% surge in auto sales, follows a 0.3% rise in November. The U.S. economy has broadly held up well and the question for markets will be whether this ongoing strength risks leading to an unwelcome rebound in inflation.

The core consumer price index (CPI) in Japan recorded a year-on-year increase of 2.3% in December, slightly lower than the 2.5% reported in November. Headline wage growth also experienced a significant slowdown in November. This data brought into question the expectations of those investors who believed that the Bank of Japan (BoJ) might raise interest rates multiple times in the coming year. The central bank has consistently communicated its commitment to maintaining an ultra-accommodative monetary policy stance until it observes a sustained inflation uptick driven by wage growth.  The Yen unsurprisingly weakened on this news.

It is notable that, among the ongoing uncertainty and mixed data signals, the market consensus seems to be lacking strong consensus and is as widely spread in terms of short-term views.  Looking further out, we see many attractive investment opportunities, but we believe maintaining a well-diversified portfolio becomes crucial to capturing these asymmetries in a risk-controlled manner going forward.


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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 22nd January 2024.

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