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A Turbulent Start To 2024

2024 has started in turbulent fashion.

Everywhere you look, in whatever context, we are living in turbulent times.

Turbulent weather, a turbulent economy, a turbulent political outlook and escalating military action now in the Ukraine, Gaza, the Red Sea, Yemen and on the border between Pakistan and Iran.

This turbulence should keep the currency markets volatile.

Volatility in the market’s present challenges but also opportunities.

Currency Exchange Rates Update

A turbulent start to 2024 has seen the Pound pick up nearly 1.5% in value against the Euro since last month. And last week, the Pound hit its highest level against the single currency since early September.

A similar story against both the Australian and Canadian Dollars. Against the Aussie, the Pound recently hit its highest level since mid-September. It also hit its highest level against the Canadian Dollar since November after picking up over 2% in value since start of the year.

With so much turbulence around the globe, be it military, economic, or political, not too surprising that the exception to the bright start to the year for the Pound is against the US Dollar, the ultimate ‘safe haven’ currency in the markets.

What’s In The News?

In The UK…

Professor Sir John Curtice, Britain’s leading election expert, emphasizes that for a Tory recovery in the polls, two key factors are essential. First, there must be a focus on growing the economy and ensuring a rise in living standards. Second, resolving the doctors’ strikes is crucial to reduce NHS waiting times. Additionally, introducing popular tax cuts is necessary for a successful recovery.

However, these improvements need to be implemented in a manner that the public is willing to give the Conservatives credit. Simultaneously, the Tories also have to be cautious about the potential return of Nigel Farage to front-line politics. His presence could impact their recovery prospects.

Although Labour is more than 15 points ahead in the polls, Curtice notes that Sir Keir Starmer is less popular than his party.

Good News

A new report from industry group Make UK and PwC suggests – the majority of manufacturing chiefs believe the UK is now a competitive location for their business. And is set to pull further ahead of its European rivals. With the majority of bosses thinking the UK has a competitive edge over Germany, France, Italy, and Spain.

German factories in particular have been hammered by the war in Ukraine. Largely due to their reliance on cheap Russian energy.

Make UK’s report also predicts that the UK economy will improve more rapidly than the global economy in 2024. Tax cuts helping make the country more attractive to international companies, as full expensing reduces tax bills for companies investing.

Post-Brexit trade deals are also helping, with more than a quarter of firms seeing new export opportunities.

Analysts at Rightmove report that UK house prices have made their biggest January leap since 2020. Amid a mortgage price war with buyer demand in the first week of 2024 five per cent higher than last year.

More than 30 British lenders have slashed their home loan rates since the start of the year. According to financial information website Moneyfacts.

Google announced plans to spend $1bn building a data centre in Hertfordshire. Representing its biggest single investment in the UK. Google said “continued investment in technical infrastructure, including its data centres, plays a critical role in supporting the company’s artificial intelligence innovations and growing cloud needs in the UK.”

Google has been operating in the UK for over 20 years, and currently employs over 7,000 people in the country.

Chancellor Jeremy Hunt has signalled he will deliver a tax-cutting Budget on the 6th of March. The Chancellor hailed the end of an era of high inflation. Mr Hunt said lower taxes were the “direction of travel.” He is preparing to fight a campaign against a Labour Party hinting at tax cuts for workers. Speaking at the World Economic Forum Switzerland, Hunt said he will focus on “pro-growth policies” in his upcoming Budget. He hopes to make Britain more competitive.

Claire Coutinho, the Energy Secretary announced plans to build a new nuclear power station. It will have the capacity to power as many as six million homes to boost energy security and hit net zero targets.

BT have announced plans to turn 60,000 street cabinets into electric car chargers. The telecoms giant hopes this will be a major boost for the UK’s net zero ambitions.

Petrol prices have fallen to their lowest in more than two years. This is due to tumbling oil prices filtering through to the pumps.

Graph showing the UK has grown faster than any other major European economy since 2010

Not So Good News

The ONS (Office for National Statistics) reported that inflation picked up last month. This is the first time in nearly a year. Dashing hopes that the BoE (Bank of England) will begin cutting interest rates in the coming months. Before the latest data was released, the financial markets were predicting that the BoE would begin lowering borrowing costs by May at the latest.

Friday saw the release of very poor UK retail sales figures for December. Expectations were for sales volumes to rise by 1.4% on the year in December. Instead, they fell by 2.1%. On top of a 3.2% slump in the value of UK retail sales, this makes it more likely that the economy contracted in the fourth quarter of 2023. It’s the worst set of retail sales figures in nearly two years in the run-up to Christmas.

Tata Steel is set to press ahead with plans to close its furnaces at Port Talbot in South Wales. Putting 3,000 jobs at risk. This is the second time in three months the company has mooted the closures. November discussions amounting to an apparent stay of execution for the plants.

Contrary to her promises to bereaved families, the Covid Inquiry heard last week that former Scottish First Minister Nicola Sturgeon deleted all her pandemic WhatsApp messages. At a hearing in Edinburgh was told that the former First Minister had “retained no messages whatsoever” over the pandemic.

In The USA…

In a recent poll of 1,200 US business leaders, the top concerns for the US economy in 2024 include the potential for a recession, inflation and interest rates. Additionally, political risk, particularly the growing political polarization, is identified as a factor making governance more challenging.

Donald Trump crushed his Republican rivals in a landslide victory at the first Republican caucus in Iowa.

A Trump victory in November could result in sweeping changes for US policies. Affecting trade, overseas conflicts, taxes and civil rights. Concerns that will no doubt be front of mind for business leaders and policy makers currently meeting at the World Economic Forum in Davos.

The Senate passed a temporary spending bill to avert a partial US government shutdown. The deal keeps the government funded through the beginning of March.

Mortgage rates have fallen in the US to their lowest level in almost eight months.

The much-anticipated December US inflation figure came in at 3.4% versus the 3.2% expected and the 3.1% registered for November in an unwelcome signal in the market especially when core inflation is only just below 4% at 3.9% that the Fed may keep US interest rates higher for longer.

In 2023, US interest rates sharply increased to a 22-year high. This boost allowed JPMorgan, the leading US investment bank, to achieve a historic annual profit of $9.3 billion in the fourth quarter. Making it the most profitable lender in US banking history. The bank’s total earnings for the year reached $49.6 billion. A 32% increase from 2022. Surpassing the previous record of $48.3 billion set in 2021.

In contrast, rival Goldman Sachs reported its lowest annual profits in 4 years whilst Citigroup posted a loss of $1.8 billion in the fourth quarter compared to a $2.5 billion profit a year earlier. Citigroup said it will eliminate 20,000 roles in a move that will save it as much as $2.5 billion as part of Chief Executive Officer Jane Fraser’s quest to boost the Wall Street giant’s lagging returns. Similarly, Bank of America profits dropped by 50% in the same period compared to 2022.

The results come days after JPMorgan CEO Jamie Dimon warned warned Americans to prepare for a return to the 1970’s. An era marked by rampant inflation, high unemployment and a series of energy crises in the US. Dimon, often seen as a cautionary voice on Wall Street said rising prices, stagnant growth and huge government spending were among the factors linking the 2020’s to the 1970’s. Dimon also warned that the expected interest rate cuts by the Federal Reserve this year were not guaranteed.

Microsoft has overtaken Apple as world’s most valuable listed company. The boom in artificial intelligence brings a new twist to the decades-long rivalry between the two Big Tech groups.

In The EU

The 3% wage growth pencilled in by the ECB consistent with their inflation targeting is facing stiff opposition. The German railway workers’ union turned down an 11% pay rise in addition to a shorter working week. Whilst in France, the Electricite de France union is threatening to strike unless they get 6%.

This against a background of a shrinking German economy that shows little sign of a turnaround according to Ruth Brand, President of Destatis.

According to provisional estimates from Destatis, German GDP dropped by 0.3% in 2023. The economy struggled with inflationary pressures, high borrowing costs and weak demand for its exports.

The German industrial sector recorded a very poor year with output falling by 2%. Largely due to lower production in the energy supply sector. While the services sector saw expansion, it was at a weaker rate than in the previous two years. Retail activity taking a hit. Analysts are forecasting that there is little to look forward to in 2024 either. Raising the possibility that Germany would once again become the ‘Sick Man of Europe ‘.

Carsten Brzeski at ING said, “Many of the recent drags on growth will still be around. In some cases will have an even stronger impact than in 2023”.

Almost a quarter of a century after the Deutschemark was replaced by the Euro in 2002, at the end of 2023 there were DM12.24 billion in circulation split almost equally between notes and coin.

Others

The SCFI freight index hit $3,100 meaning the cost of shipping a 20-foot container has gone up 310% since the start of November. That will feed through into the cost of imports for the West. A rise in inflation takes us right back to the start of 2023. That’s before the world’s central banks raised interest rates to levels not seen in decades and could turn on its head the idea in the markets that the same central banks are set to cut interest rates throughout 2024.

Global coal usage in 2023 hit a record high. Surpassing 8.5 billion tons for the first time. On the back of strong demand in emerging and developing countries such as India and China according to a recent report by the IEA (International Energy Agency).

Furthermore, the IEA forecast no sign of a slowdown. With coal consumption in India and Southeast Asia projected to “grow significantly.” India’s coal production rose to 893 million tons during the financial year ending March 2023. Jumping nearly 15% from a year earlier. China’s raw coal production from January to November in 2023 went up by 2.9% compared with the same period in 2022.

In a speech at Davos last week, new Argentine President Javier Milei delivered a ringing defence of capitalism pointing out that “… when you look at per capita GDP since the year 1800 and until today, what you will see is that after the Industrial Revolution, global per capita GDP multiplied by over 15 times. Which meant a boom in growth that lifted 90% of the global population out of poverty. We should remember that by the year 1800, about 95% of the world’s population lived in extreme poverty and that figure dropped to 5% by the year 2020, prior to the pandemic. The conclusion is obvious. Far from being the cause of our problems, free trade capitalism as an economic system is the only instrument, we have to end hunger, poverty, and extreme poverty across our planet.”

According to a recent Reuters report, China faces challenges like a deepening property crisis, deflationary risks and weak demand. Casting a gloomy outlook for the year. The country’s population declined for the second consecutive year. Plus with no imminent interest rate cuts, experts agree that only a variety of stimuli can boost the economy. The absence of such measures has led the IMF to predict China’s real GDP growth to fall below 4% from 2027 onward.

On the other hand, India is projected to see constant growth of about 6.3% over the next five years. If this trend continues, S&P Global estimates that the country is set to become the world’s largest economy by 2030.

Graph showing India set to cement role as new GDP growth champion

There are 100 million Chinese aged between 16 and 24; of those 1 in 4 are unemployed.

China faces a complex economic landscape. Whilst its economy expanded by 5.2% in 2023, in line with government forecasts, the population saw a decline of 2 million.

A separate report highlighted the challenges in China’s real estate sector as new home prices experienced the sharpest decline in December since 2015. This marked the sixth consecutive month of decreases, reflecting ongoing issues due to weak confidence. 

Meanwhile, China’s consumer prices marked their longest streak of declines since 2009. Extending a deflation that may require more government support to reverse. The consumer price index slipped 0.3% in December from a year earlier. This was in line with economists’ expectations for a third straight month of declines.

Exports also fell, the first annual drop since 2016 for what has historically been a major pillar of growth for the economy.

China commissioned as much new solar power capacity in 2023 as the entire world did in 2022, as Beijing ramped up its drive to dominate the renewable energy market.

The UAE (United Arab Emirates) has for years been the Middle East’s go-to tech hub, thanks partly to its lack of personal income tax, flexible visa policies, and competitive incentives for international businesses and workers. Saudi Arabia is keen to capture some of the limelight, and talent, from its neighbour on the Arabian Peninsula, an ambition laid bare at Davos last week.

Apple became the world’s largest smartphone maker by volume in 2023 ending Samsung’s 12-year reign as the industry leader as consumers trade up to higher-priced handsets.

THE COSMOS OFFER

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

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Quote

This week’s quote is from Jim Rohn
“If the why is powerful, the how is easy.”

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