December 2023 Market Insights
Most of developed markets continued their year-end rally as investors anticipated interest rate cuts over the coming 12 months.
Written by Kevin Hua Co-founder & Chief Investment Officer
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What happened to the markets in December?
Most of developed markets continued their year-end rally as investors anticipated interest rate cuts over the coming 12 months.
The best performer was the U.S. Russell 2000 Index, which was up +12.05% and the U.K. FTSE 250 Index, up +7.99% (local prices). The largest negative performances were from China’s Shanghai Composite Index and Hong Kong’s Hang Seng HSCEI Index, down -1.81% and -1.52% (local prices) respectively. The +3.03% rally by the AUD against the USD, dampened AUD returns for the Trends and indices.
Interest rate cuts are likely in 2024
Inflation in the U.S. continued to gradually slow in November to 3.1% from 3.7% in September. Such data is giving increase weight for the U.S. Federal Reserve to begin a cycle of interest rate cuts in 2024 with expectations that interest rates will end 2024 at 4.50% to 4.75% from the current 5.25% to -5.50% range.
Economic growth remains robust with expectations of 4.9% annual growth.
Growing support for some interest rate cuts in 2024
Annual inflation fell to 2.4% in November from 2.9% in October in the European Union. This was down from an annual inflation rate of 10.1% in the previous year. Whilst the European Central Bank has been more muted in its commentary of a change in interest rate policy, many investors are anticipating some rate cuts in 2024.
European GDP fell by 0.1% in 3Q 2023, and the European purchasing managers’ index fell to 47.0 in December suggesting some contraction in the economy.
Inflation in the U.K. saw a continued decline to 3.9% in November, down from 4.6% in October and 6.7% in September. With little to no growth in U.K. growth, investors are also expecting some interest rate cuts in 2024.
Chinese economic remains weak while Japan’s economy is improving
The Chinese economy and Chinese equities remain relatively weak as economic growth remains muted with the real estate sector continuing its troubles. Investors continue to be frustrated that the Chinese government is not providing sufficient stimulus measures to boost economic growth and fix structural problems in the economy such as the real estate sector.
Economic figures in Japan are muted with 3Q 2023 GDP data showing weaker-than-expected domestic demand, consumption, and capital expenditure. However, wage growth is strong and as are corporate earnings generally.
In Japan, the macroeconomic conditions have improved although GDP growth in 3Q 2023 was lower than some expectations. However, the economy is seeing improvement in business sentiment in the manufacturing and non-manufacturing sectors with capital expenditure increasing.