The twelve strikes of Christmas

 

 

‘Twas the night before Christmas and not a train or postal van was stirring.

Strike action continues to hamper the UK economy. Even Santa’s elves have announced they will be taking industrial action in the run up to Christmas in a dispute over ‘pay and conditions’. Although, this is not thought to be due to concerns about elf and safety.

Meanwhile, UK health officials have asked Santa to undertake a full ‘risk assessment’, before climbing down chimneys this Christmas. This is due to the higher number of households that will be lighting fires to keep warm, given soaring energy prices. Householders are advised not to leave mince pies or food and alcohol out for Santa, as health officials are concerned by his body mass index or BMI. Children may leave out carrots for Santa’s reindeer, but mindful of the cost-of-living crisis, Santa’s PR department has said ‘Rudolph is a fussy eater and doesn’t like wonky vegetables.’

What do we want for Christmas? Peace in Ukraine has to be top of everyone’s Christmas wish list, as the war has exacerbated many of the world’s current challenges from energy and food security to inflation.  A ceasefire or peace deal in 2023 has to be a top goal, but is it possible given the lack of trust on either side?

What about a stock market Santa rally this Christmas? While we all felt the first proper winter chill last week, investors did ‘warm’ to the latest US inflation data that showed a further ‘cooling down’. However, the US Federal Reserve tried to be the ‘Christmas grinch’ for although it slowed the pace of interest rate hikes, it presented a ‘hawkish’ picture to push back on market hopes of a potential ‘Fed pivot’ in 2023.

The Bank of England also slowed the pace of rate hikes with a widely anticipated 0.5% increase. Unexpectedly, two committee members voted for no change. A more welcome or dovish sign perhaps?

Talking of doves….

‘On the first day of Christmas my true love sent to me – A partridge in a pear tree.’ Sadly, I am still waiting for it to be delivered due to the postal strike. So glad she didn’t send the six geese a-laying this year, as I wouldn’t like to be the one to have to clear up that mess at the central sorting office.

What have we been watching?

It was all about the inflation outlook and central bank interest rate policy last week.

There was a reminder of geo-political tensions for 2023. Taiwan confirmed that 18 Chinese nuclear bombers had entered its air defence identification zone.

Could the war in Ukraine be about to see yet another twist? Military vehicles in Belarus have been daubed with a red square in a move similar to Russia’s Z identification marking before it invaded Ukraine. If Belarus were to support Russia, it would present Ukrainian forces with a new tactical problem with a new front opened in the north of the country. A further escalation of the war in Ukraine would not be a welcome development.

 

In the UK, the first proper cold-spell of winter sent the country’s benchmark electricity price to a record high of over £2,585 a megawatt-hour. Drax was also asked to be on standby to start-up two coal-fired power stations. About 28% of the UK’s energy requirements have come from wind power but this dropped to 5% last week due to the lack of wind. The UK also relies upon France for electricity which is itself seeing its energy network under pressure due to challenges with its nuclear sector.

UK inflation appears to have peaked with November CPI at 0.4% to give an annualised rate of 10.7% which was down from October’s 11.1%. Sterling’s recovery and lower petrol prices helped although food inflation remains stubbornly high at 15%. The Bank of England (BoE) delivered the expected 0.5% interest rate hike to 3.5% with 6 of the 9 committee members voting for this but unexpectedly two voted for no change. The BoE expects inflation to fall sharply from mid-2023 and to be some way below target from 2024.

 

The European Central Bank (ECB), as expected, increased interest rates by 0.5% to 2.5% and signalled that they will increase ‘significantly at a steady pace.’ The ECB expects eurozone inflation to drop to 6.3% in 2023 and 3.4% in 2024 although both numbers are ahead of its earlier estimate. The ECB trimmed its economic growth forecast for the region for 2023 to 0.9% saying the economy is likely to contract in the first quarter. The economic growth projection for 2024 stays at 1.9%.

 

In the US, there were hopes that the ‘worst is behind us’ with signs of inflation cooling. The November monthly CPI was 0.1%, the annualised rate was 7.1% and core inflation 6%. All of these were slightly lower than expected with the annualised rate down from 7.7% in October.  As was expected by markets, the US Federal Reserve (Fed) took its first step in moving away from its aggressive tightening efforts by announcing a 0.5% interest rate hike to a range of 4.25%-4.5%. Although the Fed committee members voted unanimously to scale down the rate of hikes from 0.75% at the four previous meetings, the clear aim of the accompanying press briefing was to present a hawkish picture to push back on market expectations of a potential ‘Fed pivot’ in 2023, with hopes of a cut in interest rates.

Read our latest Chinese investment insights from Alpha PM

 

While the easing of China’s strict Covid-19 rules is to be welcomed, not surprisingly cases are rising. It remains to be seen what happens to the level of infections when the country enters the Lunar New Year travel rush. China needs to unlock given the evidence of November’s economic activity indicators with both industrial output and retail sales below expectation.

Read our latest investment insights from Alpha PM

 

The onset of a cold weather spell and China easing Covid-19 restrictions saw Brent oil rally slightly to $82.

Finally, a business opportunity gone wrong. A company in Dorset is facing a ‘major loss’ after purchasing 18,000 T-shirts sporting the message ‘England, World Cup winners 2022.’ Unfortunately, to quote a well- known sole trader in Peckham, rather than ‘This time tomorrow, Rodders, we’ll be millionaires’ it sounds more like ‘what a plonker!’

This is the last Alpha Bites of the year but we will be back in 2023 with our slightly different take on the weekly world of stock market investing.

Wishing all of our readers a very merry Christmas and prosperous New Year!

Read Last Week’s Alpha Bites – Sitting on a gold mine

 

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