Markets Digest Fed Minutes as Starmer Prepares to Launch Labour’s Five ‘National Missions’

Keir Starmer to launch Labour’s five ‘National Missions’.

This morning will see Keir Starmer launch his five ‘national missions’ to form the cornerstone of the Labour manifesto ahead of the 2024 election which the party hopes will enable it to be in government after 13 years in opposition. The five national missions are long-term objectives for the country and cover the economy, the NHS, crime, climate and education. Starmer is also expected to state that these objectives would be measurable so that the electorate would be able to hold the party accountable for any successes or failures. The labour party are also expected to announce that these plans would ensure that the UK would be the fastest growing economy in the G7.

Starmer's plans for UK growth comes as the IMF’s latest forecast indicates that the UK will be the only major economy to shrink in the G7 this year, with growth even behind that of Russia. The fund are suggesting that between Q4 2022 and Q4 2023, the UK economy will shrink 0.6% which comes as a downgrade from their previous October estimate of a 0.2% contraction over that time period. The IMF citied high energy prices, tighter fiscal and monetary policies, and tighter household budgets as leading factors behind the contraction.

The labour party currently enjoy a 20pt lead over the conservatives in recent polling. Indeed, according to the latest Ipsos Political Monitor, taken between 18th and 25th January, the organisation stated that “70% think the Conservatives have done a poor job in government and 66% think it is time for a change at the next election”. As such all eyes will be on the focused on the substance of these five ‘national missions’ and how it floats with the electorate.

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Oil Slumps as WTI Crude Futures Fall More Than 3% On Wednesday.

Yesterday saw oil prices continue to fall as investors digest the publication of the Fed’s minutes and the impact that higher-than-expected inflation data and strong retail sales would have on the Fed’s monetary policy. The Fed reaffirmed their commitment to bring inflation back down to their 2% target which subsequently saw investors digest some of the hawkish sentiments in the text. Nevertheless, the minutes also showed that most officials favoured 25bpt rate rise with only a few opting for the 50bpt hike. ?

As such, WTI crude futures fell more than 3% in yesterday’s session and has dipped below $74dpb this morning. This also follows Russia recent announcement to cut oil output by half a million barrels a day in March in response to the latest string of western sanctions. This figure equates to around 5% of total production in Russia.

This week’s slump in oil prices indicates that they have fallen a little over 8% in the last month and close to 18% on the year, having spiked at around $120dpb last March.

Last week, OPEC raised their world oil demand forecasts for 2023 by 100,000 bpd bringing their total forecast to 2.3m dpd. The organisation cited “improvements in economic activity in some countries and a slight recovery in oil demand in China after the lifting of its zero-Covid-19 policy” as being key drivers behind the rise in forecasts.?

OPEC’s upwardly revised forecasts follow the International Energy Agency’s assessment that global oil demand could rise by 2m bpd to reach a record level of just shy of 101.7m bpd. According to the IEA, half of the expected rise in demand will be driven by China’s reopening, given that it is the world largest importer of crude oil.

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US Housing Market Continues to Slow

Yesterday saw US home sales post their twelfth consecutive monthly fall as house price inflation continued to ease. According to Bloomberg, this equated to a $2.3tn drop from its peak in June, the biggest decline since 2008. While this indicates yet another slowdown in house prices, the pace of decline shows signs of reducing, leading some analysts to speculate on whether the market was nearing the bottom. ?

Mortgage rates continue to rise however, with the 30-year fixed mortgage rate rising to an average of 6.32% last week, up from 6.12% last week.

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Equities Update

Focus on the publication of the Fed’s minutes and speculation over the FOMC’s next move in March put further pressure on equities. The S&P 500 ended yesterday 0.16% down which comes on the back end of Tuesday’s session which saw the index close 2% lower. The tech heavy Nasdaq saw a marginal rise of 0.13% while the Dow Jones lost 0.26%. While European shares ended in the red, the decline was somewhat more muted with the Stoxx 600 falling 0.33%.?

When looking more globally, The MSCI world equity index dropped a little under half a percent.

In the UK, markets reacted positively to Rolls Royce’s earnings report which showed underlying revenue of ￡12.69bn in the 12 months to December 31 – a significant rise from last year’s figure of ￡10.95bn. Underlying operating profit also increased from ￡414mln a year ago to ￡652mln.