December '23 Market Report

November witnessed significant gains for investors as both stock and bond markets responded positively to the anticipation that central banks are nearing the end of their rate-hiking cycle, with expectations of rate cuts beginning from mid-next year. The MSCI World Index experienced its best month in three years, measured in US dollars. Despite a rise in sterling diminishing some gains for UK investors, monthly returns still exceeded 5%.

The past month's dovish signals from central banks, combined with encouraging economic indicators, have shaped a consensus view anticipating more accommodative monetary policies ahead. Despite predictions that 2023 would be a tough year for economies and financial markets due to the strain of rapid interest rate hikes, the outlook has generally been better than anticipated, barring any unforeseen events in the near future.

Overall, economic indicators and corporate earnings have been positively surprising, helped in part by lower expectations stemming from previous pessimistic projections. The latest economic data suggests that economies are decelerating but continue to expand, with inflationary pressures easing-a scenario that favors investors hoping for what's been termed as immaculate disinflation. While uncertainties persist, the prospect of a soft landing, previously regarded by many as overly optimistic, is now considered a viable outcome.

In terms of inflation, both the US and Eurozone have shown significant improvements. The US's core personal consumption expenditures (PCE) price index, a preferred measure of inflation by the Federal Reserve, recorded a 3.5% increase on a yearly basis, while the Eurozone's consumer price index (CPI) dropped to an annual 2.9%. The UK's situation isn't as favorable, but it has still seen considerable improvement, with its most recent CPI report showing a year-on-year increase of 4.6%, significantly below its peak in late 2022.