Weekly Market Update - 4th April 2024

The first quarter of 2024 ended on a positive note, with growth in most major markets, and encouraging inflationary news in the UK.

Starting with the latter, the British Retail Consortium (BRC) reported that shop price inflation eased to 1.3% in March, down from 2.5% in February. This was the lowest level recorded since December 2021.

With Easter coming towards the end of March, chocolate sales were unsurprisingly notable. The BRC noted that although Easter treats were more expensive than in previous years due to high global cocoa and sugar prices, falling dairy prices and strong retail deals led to lower prices when compared to February.

Mike Watkins, Head of Retailer and Business Insight, NielsenIQ (who collate the data for the BRC), said: “The slowdown in inflation continues and a key driver this month was a further fall in food prices. A year ago, food inflation was at 15% so this was to be expected. But it is also helped by intense competition amongst the supermarkets as they look to drive footfall, with focussed price cuts and promotional offers earlier in the month for Mother’s Day and now again in the weeks leading up to Easter.”

For UK investors trying to predict when interest rates will move, falling food inflation will likely be encouraging news.

That said, noises coming from the Bank of England suggest the path to interest rate cuts might not be quite as straightforward as some are hoping. For example, one bank policy maker, Catherine Mann, said last week that, ‘the market was pricing in too many cuts’ in her view. Similarly, Jonathan Haskel, an External member of the Monetary Policy Committee said, “I think cuts are a long way off.”

Overall, the FTSE ended the week up slightly, meaning it rose 3.5% over the first quarter.

A number of markets rose over the quarter, with notable performance found in the US, Japan and Italy.

In the US, the S&P 500 ended last week at another record high, having risen over 10% in the first quarter of the year. The NASDAQ also finished the quarter up almost 10%.

US markets were broadly helped last week, after the US GDP growth rate for the fourth quarter of 2023 was revised up to 3.4% (compared to a prior estimate of 3.2%).

Anyone following the US market will likely have heard of the ‘Magnificent Seven’ by now (seven large technology companies that have dominated performance since the start of last year). This means that, although US markets as a whole are trading at record highs, beneath the surface there may still be opportunities.

Roberta Barr, Head of Value ESG and Fund Manager at Schroders noted, “Beneath the massive outperformance of the S&P 500, you have a lot of companies in normal cyclical troughs on huge valuation discounts. There’s the saying that it’s always ‘darkest before the dawn’ and actually, as a value investor, we are beginning to see some amazing opportunities. We have these quite high quality, cash-generative, pretty robust businesses, that aren’t the Magnificent Seven, which you’re getting on a real discount today.”

Although the Japanese market has performed exceptionally well so far in 2024 generally, last week was not so positive. The Nikkei 225 slipped 1.27%, as investors focussed on the volatile Yen versus Dollar exchange rate. This came under pressure amid speculation that authorities could intervene in the foreign exchange markets to support the weakening Yen currency. A weaker Yen has benefited many of Japan’s large-cap exporters recently, as they derive a significant share of their earnings from overseas.