Originally published at: Monthly market roundup – January 2024 – InvestEngine Insights
Welcome to the latest edition of our monthly market roundups.
January saw the amount invested in passive funds overtaking active funds in the US, in a watershed moment which came after 11 years of higher net passive flows for both equities and bonds.
We also saw India overtaking Hong Kong to become the fourth largest stock market in the world, now behind only the US, China, and Japan.
Cryptocurrency enthusiasts were buoyed by the SEC’s long-awaited approval of a spot Bitcoin ETF, although the UK still maintains its ban on retail investors’ access to Bitcoin ETFs.
Inflation rises
UK inflation data released in mid-January showed prices increased unexpectedly in December.
Prices rose at an annual rate of 4%, which was higher than the 3.9% figure from the previous month, and above the 3.8% expected by the market. The increase in inflation was primarily driven by increases in alcohol and tobacco prices.
The core CPI rate, which excludes energy and food, rose 5.1%, which again was higher than analysts had expected.
The strong inflation figures caused markets to reevaluate their expectations for the timing of future rate cuts, as well as causing a sharp sell-off in gilts.
There was some relief towards the end of January, however, when The British Retail Consortium announced that annual shop price inflation slowed to 2.9% in January, down from 4.3% in December.
Interest rates unchanged
At the most recent Bank of England meeting on the 1st February, the central bank held rates at 5.25%.
The Bank of England governor, Andrew Bailey, noted that “We need to see more evidence that inflation is set to fall all the way to the 2 per cent target, and stay there, before we can lower interest rates”.
He added that, with service price inflation still high and the negative contribution of falling energy prices set to fade in coming months, the Bank of England could not yet declare that “the job is done”.
Similarly, in the US the Federal Reserve held rates constant to keep the benchmark federal funds rate at 5.25 – 5.5%. Jerome Powell, the Fed chair, attempted to quell speculation that they would begin cutting interest rates as soon as March by noting that this was not the “base case”, causing a sharp selloff on the day.
Equity markets start the year mixed
January was littered with news stories about the US market reaching several new all-time highs towards the end of the month, as it looked increasingly likely that the Fed could successfully bring inflation under control without causing a major recession, executing a so-called soft landing.
Despite these all-time highs being promptly quashed by Jerome Powell’s comments on the 31st, the US market still gained 2% over January, pulling global markets higher.
The US was, however, the only one of the major regions to post a positive gain, with the UK falling 1.3% on the back of the unexpectedly high inflation reading. European stocks rose in local currency terms following strong company earnings, but due to Euro weakness over the month, the market was flat in sterling terms.
Emerging markets fell 4.3% as investors expected geopolitical tensions between US and China to intensify as the US nears this November’s election, as well as a deepening Chinese housing slump, and stubborn deflationary pressures.
Bond yields rise
UK bond yields rose over the month (meaning bond prices fell) as the market responded to the inflation data by reducing its expectations for interest rate cuts early this year.
The 2-year UK gilt finished the month at 4.3%, up from 4.0% last month, and the 10-year finished the month at 3.8%, up from 3.5% last month:
Sterling stronger against the Euro
Sterling weakened slightly versus the US dollar over January, finishing the month at $1.27. Versus the Euro, however, sterling strengthened by around 1.7% over the month, rising to finish at €1.17 from €1.15.
Off the beaten track
A deep dive into the Government’s £3.7m wine cellar
Yes, the UK has strategic wine reserves. The Government Hospitality wine cellar was established in the aftermath of the First World War to handle buying wine for when the government had high-profile guests. “The Cellar”, based in the basement of Lancaster House, has wine choices guided by the recommendations of the Government Wine Committee, which consists of retired diplomat Sir David Wright and four masters of wine. Per the bi-annual reports, “The committee has no budget”.
God told me to sell crypto
Here’s a fraud case against a pastor named Eli Regalado and his wife Kaitlyn, who started a crypto project called INDXcoin. When the project turned out to be a scam, which seems par for the course for crypto projects, the pastor’s response was… interesting:
“The Lord told us to walk away from our parking company. … He took us into this cryptocurrency … well, that cryptocurrency turned out to be a scam…. And I said Lord … you told me to do this.”
The couple took about $1.3 million from more than $3 million raised for the project. Regalado said about $500,000 went to the Internal Revenue Service, and a “few hundred thousand” was devoted to a home remodeling project that “the Lord told us to do.”
The case of the fictional CEO
A man named Steven Reece Lewis was introduced as the chief executive officer of HyperVerse, a crypto fund, at an online global launch event in December 2021, with video messages of support from a clutch of celebrities including from the Apple co-founder Steve Wozniak and actor Chuck Norris. Lewis was a graduate of the University of Leeds, held a master’s degree from the University of Cambridge, had worked for Goldman Sachs, sold a web development company to Adobe, and launched an IT start-up firm. He also does not exist.
The FTSE 100 turns 40
A selection of useless trivia on the FTSE 100 to celebrate its 40th birthday, courtesy of the FT’s brilliant Alphaville team.
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