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T&IO Weekly Market Update

5 min read 16 Feb 24

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Your update produced by our in-house experts from the M&G Treasury and Investment Office (T&IO) can be read below.

As Chinese Lunar New Year was celebrated around the world this week, economic data took the driving seat in financial markets. In a rare occurrence UK, European and Emerging equity markets outpaced the US, as a persistent US Consumer Price Index (CPI) data release pushed US yields marginally higher and held back equity gains. Importantly, markets continue to shrug off escalation in the Middle East and reports of a ‘troubling’ development of Russia pursuing “anti-satellite capability”.

UK unemployment decreased, even though the number of employees being made unemployed outstripped those being employed. Bank of England Governor Andrew Bailey highlighted the level of economic uncertainty by saying “it is hard to judge if unemployment rate is 3.8% or 4.2%”, “wage forecasts are based on Monetary Policy Committee (MPC) judgement, not models” and in light of the UK being in technical recession, “we are now seeing signs of the beginnings of a growth pick up”. UK wage growth remains elevated at 6.2% but the slowest in 14 months. A good sign for workers as real wage growth (c.+2%) extends its time in positive territory but causes the UK Central bank to scratch its head on the timing of interest rate cuts. UK Gilt yields rose on the unemployment and retail sales data (+0.7% year-on-year, expected -1.4%) but fell after the economic growth data was released; ending the week where it started.

US CPI fell back to 3.1% in January, after a temporary rise in December (3.4%), but higher than forecast (2.9%), much to the disappointment of markets. Food, shelter and new vehicle prices reaccelerated. As a team we have spoken about the importance of shelter, the increase appears to be mystery, as one broker reported, and more than likely temporary. Personal Consumption Expenditure (PCE), the more consumer focused price metric preferred by the US Federal Reserve, is released on the 29th February and may become more important than usual.

While central banks continue to keep monetary policy tight enough to drive inflation back towards the 2% target there is growing evidence of a continued softening in inflation. This has led focus to turn to the potential for central banks to ease policy rates to prevent further restriction to the economy and the prospect for a global economic ‘soft landing’. While recent central bank meetings have suggested the next move in interest rates is downwards, officials have been cautious to confirm when these cuts will be implemented, with a careful eye on data to ensure a sustainable route back to the inflation target.

Please note that the below is relevant for all Prudential multi-asset funds. The tactical asset allocation comments relate to the WS Prudential Risk Managed Active and Passive ranges.

With continued disinflation traction, alongside the continued positive fundamentals of the US economy and the spill-over effects this could have globally, we remain moderately overweight equites (+2.25%), with funding from European IG (-1.50%) and Cash (-0.75%).

*Please note that the tactical asset allocation (TAA) commentary does not apply to the PruFund range of funds. The TAA mandate is run by the Macro Investment Business (MIB) within M&G.

Equities

1 Week

YTD

1 Year

S&P 500

0.12%

5.64%

24.95%

FTSE 100

1.22%

-0.82%

-0.65%

Euro Stoxx 50

1.33%

5.92%

14.05%

MSCI Asia Pacific ex Japan

0.98%

-2.21%

-1.16%

MSCI China

1.51%

-6.54%

-22.84%

Government Bonds

1 Week

YTD

1 Year

Bloomberg Global Sovereign Index

-0.11%

-2.16%

3.43%

Global Corporates

0.00%

-1.24%

4.98%

Global High Yield

0.08%

0.34%

10.36%

Asia Local Ccy Bonds

0.08%

0.20%

1.31%

Source: Bloomberg as at 9:48am on 16.2.24

Information provided has been obtained from sources that M&G Treasury and Investment Office (T&IO) believes to be reliable and accurate at the time of issue but no representation or warranty is made as to its fairness, accuracy, or completeness. The views expressed herein are subject to change without notice. No person should rely on the content or act on the basis of any matter contained in this document without obtaining specific professional advice. Neither T&IO, nor any of its associates, nor any director, or employee accepts any liability for any loss arising directly or indirectly from any use of this video. Reference to the names of each asset class/company mentioned in this communication is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies.

The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back less than the original amount invested and past performance information is not a guide to future performance.

‘M&G Treasury & Investment Office (T&IO)’ includes the team formerly known as Prudential Portfolio Management Group (PPMG). Prudential Portfolio Management Group Limited, is registered in England and Wales, registered number 2448335.

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