Blue and gold background, the corporate colours of Cosmos Currency Exchange with a photo of Tony Redondo, the founder of cosmos introducing his blog titled The Fed Plays Santa Claus

Fed Plays Santa Claus 

The Fed went and did it. Fed Chair Jerome Powell should have worn full Santa Claus garb for last Wednesday’s announcement that the Fed is pencilling in up to three interest rate cuts in 2024. Which sparked off a stock market bonanza that led various indices, in the US and around the globe hit all-time highs. A very Merry Christmas wish for investors from the Santa Claus Fed.

Currency Exchange Rates Update

The Pound leapt to its highest level against the US Dollar since early August following the Fed update.

Against the Euro, the Pound rose to hit its highest level since early September.

The risk appetite rally hurt the Pound against the high yielding currencies. The Pound briefly fell to its lowest level against the Australian Dollar since late June. Against the New Zealand Dollar, the Pound fell to its lowest level since late May. Against the South African Rand, the Pound fell to hit a one month low.

What’s In The News?

Image fron Statista showing the world's most liveable cities ranked by living conditions in 2023

In The UK…

The UK Christmas tree is looking festive this year with some sparkles for the UK economy boding well for 2024.

It looks likely that the UK will avoid slipping into recession. With business activity up more strongly than expected in December and contrasting favourably with the euro zone.

Good News

As predicted, the Bank of England (BoE) maintained the Bank Rate at 5.25% for the third consecutive meeting. Despite expectations for a significant rate cut next year, the BoE’s decision had a ‘hawkish’ tone. Three out of nine Monetary Policy Committee (MPC) members voted for a 0.25% rate increase to tackle potential inflation persistence risks. Although a majority of six members chose to keep the Bank Rate steady, they acknowledged that inflation risks leaned towards the upside.

Chancellor Jeremy Hunt has enough headroom to cut taxes by at least another £10bn before the next election. As government borrowing costs fall according to economists. That has fuelled predictions that Mr Hunt will have the option to cut income tax by a penny during his Spring Budget.

The latest closely watched PMI (Purchasing Managers’ Index) data suggests businesses are feeling reasonably confident. With growth at a six-month high. The UK Services sector accounts for over three quarters of the whole economy. Operators are reporting the London Christmas party season is in full swing. With full houses across the board after years of struggle with the Covid lockdowns and transport strikes. That’s good news for restaurants, pubs and taxi drivers. Plus companies don’t typically plan lavish Christmas parties if they’re picking over the books to work out where they can make cutbacks.

Meanwhile, UK consumer confidence continues to gently improve.

A new survey by the Royal Institution of Chartered Surveyors (RICS) said the outlook for the UK housing market is looking up. With 24% of surveyors expecting house sale levels to improve over the next two years. RICS said this is the most “upbeat return” for this forward-looking measure since January 2022.

Business and Trade Secretary Kemi Badenoch hailed the £868bn UK exports bonanza as a Brexit trade victory. With the UK’s economy growing faster than many other European countries. In particular the UK tech sector. Which is thriving with more unicorns (start-ups valued over $1 billion) than Germany and France put together.

Mark Drakeford is standing down as First Minister of Wales.

Not So Good News

The October GDP release showed the UK economy started the final quarter of the year on a weak note. Registering a 0.3% monthly decline. The decline in October’s GDP data was broad based with all three major sectors recording declines in activity. The Office for National Statistics (ONS) reported that October saw “exceptionally wet weather” which is likely to have been the sixth-wettest October on record. Based on data that goes back to 1836.

The Organisation for Economic Cooperation and Development (OECD) warned that net zero will leave the UK economy £60bn smaller. And cost the world as much as $3.6 trillion.

The Treasury Select Committee has launched an inquiry into SME (Small and Medium sized enterprises) lending. As data showed this has dropped 20% in its fifth consecutive quarterly drop as major banks face scrutiny from MPs. UK Finance said the data showed SMEs were relying on savings instead of new funding. Its latest Business Finance Review found gross lending to SMEs was £3.5bn in the third quarter of 202. Down from £4.4bn in the same period last year.

After winning the landmark Rwanda vote, Rishi Sunak’s most dangerous day to date has come and gone. Chances are the peril has just been postponed until next year when the legislation comes back to the Commons committee stage votes. A recent opinion poll taken after the vote last Tuesday shows Sunak’s popularity has dropped to the lowest-ever level.

Retail investment firm Wealth Club reported that the UK’s top 100,000 taxpayers (just 0.3% of all taxpayers) paid 24% of all income and capital gains tax in 2021/22.

The Wealth Club data also showed that the overall income and capital gains tax taken from the top 100,000 had risen by 45% in the last five years.

Alex Davies, the founder of Wealth Club said “It is commonly claimed that wealthy individuals do not pay their fair share of tax. These figures prove what a myth that is. The message is clear for politicians of all persuasions when deciding future tax policy – tread very carefully. The wealthy are a mobile bunc. Proven by the fact that an estimated 3,200 millionaires are expected to leave the UK this year. And they pay a significant proportion of the UK’s tax. If the top 100 taxpayers up sticks and move to sunnier tax climates, that would be £4.6bn less in tax receipts. If the top 1,000 taxpayers migrated out of the UK, that figure would rise to £11.5bn. Leaving a massive gap in the country’s finances.”

The Scottish government has clearly not read the report. If you earn £125,000 and live in Scotland, you already pay £3,360 more in income tax than if you live in England. Scottish First Minister Humza Yousaf is now planning to put in a new tax band (45% between £75 and £125,000) which will bring that up to well over £5,000.

In The USA…

After twenty one months of the Fed’s aggressive monetary tightening, there’s a rising chance of successfully reducing inflation without causing a recession or significant unemployment increase.

The latest US economic data showed CPI inflation down to 3.1% in November. The unemployment rate still hovering below 4% and US GDP on track to grow 2.5% this year. The often-quoted “soft landing” is in sight, even though Fed Chair Jerome Powell refuses to declare “mission accomplished” for now.

US mortgage rates fell below 7% for the first time in four months.

A survey by Rasmussen Reports and the Heartland Institute revealed that 20%+ of 2020 mail-in voters claimed fraudulent actions. The survey asked if they filled out a ballot for a family member; 21% admitted to doing so. Also, 17% voted in a state where they’re not residents, violating federal law. Another 17% signed a ballot for someone else, breaking election law. Furthermore, 10% knew someone who voted by mail in the wrong state, and 11% knew someone who signed another’s mail-in ballot in 2020.

Justin Haskins with the Heartland Institute said “The results of this survey are nothing short of stunning. For the past three years, Americans have repeatedly been told that the 2020 election was the most secure in history. But if this poll’s findings are reflective of reality, the exact opposite is true. This conclusion isn’t based on conspiracy theories or suspect evidence, but rather from the responses made directly by the voters themselves.”

The Nuclear Regulatory Commission allowed a new nuclear reactor, a first in 50+ years. Kairos Power got approval for its Hermes demo reactor in Tennessee. Unlike current reactors using water cooling, Kairos uses molten fluoride salt.

The EU

Like the Bank of England, the ECB (European Central Bank) kept its benchmark interest rates on hold last week and gave few indications of when it might follow the Fed’s lead and start cutting interest rates. 

In contrast to the UK, the euro area PMI index remained in contraction territory for the seventh month in a row and show no sign of recovery.

Composite PMI Output Indicies chart

EU leaders have agreed to open membership talks with the Ukraine despite Hungary’s threat to block this decision during the current two-day EU summit.

Europe’s highest court has ruled in favour of Amazon in a case where the European Commission accused the US e-commerce giant of receiving illegal tax benefits. The dispute dates back to 2017 when the European Commission, the executive arm of the European Union, claimed that Amazon enjoyed tax advantages in Luxembourg. The Commission ordered Amazon to reimburse €250 million in taxes.

New Dutch Prime Minister Geert Wilders has persuaded the Dutch Parliament to opt out of the EU’s asylum policies. The measures includes restricting welfare payments; less family reunifications; the need to speak Dutch; to get a job and no right to public housing.

Others

China’s consumer prices fell at their fastest rate in three years in November. While factory-gate deflation deepened suggesting heightening deflationary pressure as weak domestic demand casts doubts over a domestic economic recovery.

The producer price index (PPI) fell 3% year-on-year against a 2.6% drop in October marking the 14th straight month of decline and the quickest since August.

Credit ratings agency Moody’s issued a downgrade warning on China’s credit rating, saying costs to bail out local governments and state firms and control its property crisis would weigh on the economy.

The CEWC (Central Economic Work Conference) China’s closely watched economic policy setting committee met last week. Chaired by President Xi. The 2024 economic growth target is 5%, but Western analysts suggest a more realistic goal is 4.5%.

A top Chinese housing official pledged to avoid a cascade of defaults by property developers. One of the strongest commitments yet on containing the liquidity crisis in the industry.

India overtook Hong Kong to become the world’s seventh largest stock market. With the National Stock Exchange of India valued at $3.989 trillion versus Hong Kong’s $3.984 trillion at the end of November. India’s Nifty 50 index has jumped nearly 16% so far this year and is headed for its eighth straight year of gains. Whilst Hong Kong’s benchmark Hang Seng index has plunged 17% year to date. Making it the worst performing major Asia-Pacific market.

In Canada, Justin Trudeau’s Liberal Party appears to be losing ground. The opposition Conservative Party has a 97% chance of victory in a current general election scenario.

New Argentinean President Javier Milei delivered his first batch of measures since taking office. These included devaluing the Argentine Peso (ARS) by 54% and massive spending cuts designed to eliminate its primary fiscal deficit next year.

In the commodity markets, the price of gold hit a fresh all-time high of $2,135 per ounce.

Louis-Vincent Gave of Gavekal financial services suggests that India, traditionally a big gold buyer, is responsible with Indian domestic wealth growing.

The International Energy Agency (IEA) warned that global demand for coal will hit a record high of 8.5bn tonnes in 2023. Despite the worldwide push for net zero.

In contrast, we are currently experiencing the worst oil price downturn since 2018. The global benchmark Brent index fell for a seventh consecutive week. Brent, which traded near $100 a barrel in September is now trading at around $75 a barrel.

The Biggest Hack You Never Knew About.

On March 15, 2020, just days after the US declared a national emergency because of the Covid-19 pandemic, the computer network for the US Department of Health and Human Services briefly vanished from the internet. With an historic crisis sweeping the country, the episode seemed unremarkable and quickly receded from public view. But the department knew at the time that the attack represented a serious and unusual kind of cyberthreat. Some officials are pointing the finger squarely at China. 

THE COSMOS OFFER

Of course, currency market volatility can bring trouble but with careful monitoring can also bring opportunity.

At Cosmos, we provide our clients with a relationship not a transaction-based service.

We are pro-active not reactive.

We offer local collection accounts in: the USA; Canada; the EU and the UK saving clients time and money on transfers.

Cosmos Currency Exchange has won multiple awards for its customer service and pro-active approach.

Please call +44 (0) 300 124 6409 or email us to discuss your individual currency requirements. Alternatively if you’d like to receive our fortnightly blogs via email please subscribe here.

Quote

This week’s quote is from the 1994 film ‘Miracle on 34th Street’.

“Christmas isn’t just a day, it’s a frame of mind.”

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