Church House Joint Chief Investment Officer, James Mahon reflects on what we have seen since the start of 2024.

From an investors' perspective, 2024 got off to a poor start but then cheered up. After an exuberant end to 2023, the fixed interest markets have been more subdued but, as we have observed before, they do now offer attractive rates of interest. The equity markets were much more lively led, as with last year, by America.

The major central banks have, largely, operated in tandem again with the Bank of England (the Bank), the US Federal Reserve (the Fed) and European Central Bank (ECB) holding their base interest rates unchanged for a further three months. It appears likely that this will get more difficult as we head towards the summer.

America’s economy is displaying remarkable resilience in the face of higher interest rates with strong employment and earnings data (and that sticky inflation) undermining the case for lower rates. Inflation is continuing to fall in the UK and Europe and, though the economic outlook does look a shade more optimistic, it is not comparable to America at present.

So it seems that the Bank and ECB will/should begin to cut rates over the next couple of months before the Fed makes a move. This will get complicated as they will not wish to go too far before the Fed makes a move and risk weakening sterling and the euro too much (with inflationary consequences all over again).

Meanwhile, the Fed, while maintaining that it is not in a hurry, is still talking about rate cuts this year. Before the most recent (strong) employment data, Fed Chairman Jerome Powell had indicated that, while they are still watching the inflation and employment data closely, they do expect to reduce their rates three times this year. Of course, the timing is further complicated by the November Presidential Election, the Fed will not wish to appear to be politically motivated with its moves, though there is no love lost between Jerome Powell and Donald Trump.

It is hard to be anything other than depressed by the geo-political backdrop as we head towards a likely change in our government (maybe October, or hang on to the bitter end in January?) and the US Presidential Election.  After the mild recession around the end of last year, our economy is showing early signs of recovery (though this is also likely to be mild) as is the residential property market. Similarly in Europe, an economic improvement is likely, America is leading the way while China appears to be stuck (despite their official data, which shows continuing strong growth).

We do expect UK inflation to continue to moderate as we head into the summer and that this will allow the Bank to begin a reduction in rates, probably in June. Now, if it would only stop raining…

The full Quarterly Review is available here

April 2024


Important Information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment arrangements.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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