January 2024 Investment & Economic Update

Our latest monthly investment update for January 2024 examines how the global investment markets, economy, and commodities are performing.

The FTSE 100 index of leading UK company shares closed at the end of December at 7733.24, up 279.49 points or 3.75% during the month.

Market Rebound

In 2023, global financial markets outperformed pessimistic forecasts. Stock markets experienced a rebound, and bond markets recovered from early losses, buoyed by optimism that the US would manage a mild economic slowdown.

Significant stock indices around the world saw double-digit growth, particularly due to a surge in November and December. This surge was driven by decreasing inflation and anticipation of a potential interest rate decrease in 2024.

However, the UK's FTSE 100 showed modest growth, increasing by less than 4% over the year.

Initially, high borrowing costs led investors to predict a decrease in corporate earnings and a potential US recession. Contrary to these expectations, the US economy remained resilient, with interest rates reaching their highest in 22 years without triggering a downturn. This resilience was underscored by stronger-than-expected economic growth and near-record US corporate profits in the third quarter.

Despite ongoing geopolitical tensions impacting the markets, sectors related to artificial intelligence witnessed significant growth as investors recognized the technology's potential.

The robust performance of the US economy in 2023 alleviated some concerns about China's economic recovery and the sluggish European economy, which was close to recession at year-end.

Productivity Challenges

Influential business leaders and analysts point to inadequate middle management as a key factor hampering the UK's economic productivity.

Leading companies, including FTSE 100's Phoenix, have identified weak middle management as a major obstacle. The Resolution Foundation, an economic think-tank, also highlights this issue as a particularly notable problem in Britain on a global scale.

Phoenix, which oversees Standard Life, conducts annual reviews to assess if their divisions can maintain output with 3% fewer resources. This highlights concerns about management efficiency.

2024 Economic Momentum

The UK economy is expected to dodge a recession in 2024 and gain momentum in the latter half of the year. This improvement is anticipated as consumers experience relief from declining inflation and the easing of the prolonged cost-of-living crisis.

Bank Stocks Plummet

In 2023, UK high street bank stocks, including Barclays, NatWest, Virgin Money, and Metro Bank, resulted in a £7 billion loss for investors due to increasing doubts about the future profitability of these financial institutions.

All four banks struggled throughout the year. Notably, NatWest, involved in the Nigel Farage debanking controversy, saw a significant decline, with its share value plummeting by 20%, erasing approximately £4.6 billion in market value.

Barclays also experienced a decrease in share value, leading to an approximate £1.5 billion loss for its investors. Lloyds Bank's shares remained stagnant, failing to register any notable gains.

The situation was particularly challenging for smaller banks such as Virgin Money and Metro Bank. Metro Bank's value dramatically declined following an emergency rescue deal, while Virgin Money was unable to recover its share price.

Collectively, the market capitalisation of these four banks diminished by £7 billion, reflecting a challenging year for the sector.

Evergrande Announcement

According to a recent filing with the Hong Kong stock exchange, the share sale agreement between China Evergrande New Energy Vehicle Group and U.S.-listed NWTN has expired.

The lapse occurred because neither party agreed to extend the long stop date, which was set for the end of 2023. As a result, Evergrande New Energy Vehicle announced that the share subscription and loan conversion subscription agreement with NWTN are now void.

Energy Price Hike

The New Year brings an increase in domestic energy costs for households in England, Wales, and Scotland. This change, driven by a higher price cap set by Ofgem, will see gas and electricity prices rise by 5% compared to the last quarter.

For a typical household, this means an annual increase of about £94 in energy bills. However, there are forecasts predicting a significant decrease in energy prices in the coming spring.

Advocacy groups highlight the strain this cost increase places on family budgets, especially considering January's typical surge in debt-related issues following holiday expenditures. This year is expected to follow this trend.

In response, the government has mentioned its commitment to assisting households through measures like cost-of-living payments.

Mortgage Transaction Drop

According to Nationwide, UK house prices ended the year 1.8% lower, with no growth or a potential further decline anticipated in 2024. The average house price in December stood at £257,443, remaining stable from November but showing a decrease from the previous year.

Nationwide points out that consumer confidence is still low, even though some mortgage rates have begun to decrease in anticipation of potential cuts in borrowing costs by the Bank of England.

The number of housing transactions is currently about 10% lower than pre-COVID levels. This decline is more noticeable among buyers using mortgages, which have dropped by 20% compared to pre-pandemic figures.

On the other hand, the volume of transactions made in cash has continued to exceed pre-COVID levels, indicating a shift in the types of transactions occurring in the housing market.

Brent and WTI Decline

In 2023, oil prices experienced significant fluctuations, leading to the largest annual decrease since 2020. This decline was fueled by ongoing concerns about reduced demand, as well as geopolitical and economic uncertainties.

On the last trading day of the year, Brent crude, which serves as a global benchmark for two-thirds of the world's oil, fell 0.14% to close at $77.04 per barrel. Similarly, West Texas Intermediate (WTI), the standard for US crude, dropped 0.17% to end at $71.65 a barrel.

Over the year, both benchmarks saw a decline of more than 10%, equating to around $8.60. Brent concluded 2022 at $85.62 per barrel, while WTI finished at $80.26, marking an end to two consecutive years of price gains.

Giovanni Staunovo, a strategist at Swiss bank UBS, commented to The National that despite unexpected growth in oil demand and production cuts by OPEC+, the prices ultimately fell in 2023. This was attributed to a supply growth that exceeded expectations, leading to a less undersupplied oil market.

Market Data

£1 buys $1.2749 or €1.1535. Gold is $2,078.40 an ounce, and UK natural gas futures are 79.95p/therm, down from 108.40p/therm at the start of December. The UK 10-year gilt yield is 3.539%, down from 4.199% at the start of December.

Kellands will continue to keep you updated on market developments on a regular basis. However, if you have any questions or need some financial advice in the meantime, please do not hesitate to get in touch.


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