Britain’s primary stock indexes had a challenging start to 2024, snapping a streak of weekly gains as investors reevaluated their expectations for aggressive monetary policy easing in light of better-than-expected economic data.
The FTSE 100, which heavily relies on exporters, declined by 0.4% on Friday, primarily due to the strengthening pound, which tends to negatively impact the shares of companies earning in dollars.
This decline also marked the first weekly drop in six weeks, with global stock markets reacting to recalibrated expectations regarding rate cuts by major central banks, including the U.S. Federal Reserve.
While Wall Street stocks managed to recover from an initial sell-off triggered by stronger-than-expected jobs data, European markets remained under pressure.
Michael Hewson, Chief Market Analyst at CMC Markets, described the beginning of 2024 as “equivalent to a bit of a cold shower” after the optimism that had characterized the end of 2023.
The spirits manufacturer Diageo saw a 1.5% drop in its UK-listed shares following China’s announcement of an anti-dumping investigation into brandy imports from the European Union.
This move by China, which accounts for 3% of Diageo’s sales, added to the challenges facing the company.
Additionally, shares of Endeavour Mining, a gold mining company, plummeted by 6.9% as the CEO, Sebastien de Montessus, was immediately removed from his position.
The mid-cap FTSE 250 index also faced a weekly decline of 2.4%, dropping by 0.8%. However, some positive signs emerged from recent economic data.
Traders began to revise down their expectations for rate cuts by the Bank of England in 2024 after evidence surfaced that Britain’s economy had displayed greater resilience in December than initially feared.
A survey revealed that the construction sector showed signs of recovery, despite the steep rise in interest rates.
Additionally, British house prices experienced annual growth in December for the first time in eight months, indicating stabilization in the property market despite higher borrowing costs.
Overall, the stock market’s reaction to economic data and changing expectations resulted in a challenging start to 2024 for British stock indexes, with investors closely monitoring central bank actions and economic indicators in the coming months.
Money markets reflected this sentiment by adjusting their expectations, pricing in 123 basis points of interest rate cuts by the Bank of England for the year, compared to 150 basis points the previous week.