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Market commentary

Investment markets have seemingly moved to a more solid footing as inflation moderates and central banks have begun talking about watching how current interest rates impact on their economies, rather than expecting interest rates to rise again. For our portfolios holding a combination of defensive assets, largely Government bonds and growth assets, made up from global stocks, this offers a much more positive environment. Yields on bonds at over 5% are much higher than they sat at the end of 2021 offering a higher ongoing return along with the prospect of capital growth if we see interest rates start to fall. The picture for equities is more mixed, and we will have to wait and see what impact interest rates at the current level have on global economies.

8th December 2023


In stark contrast to last September’s mini budget, this year’s Autumn Statement took place against a much more stable economic backdrop. The Chancellor, Jeremy Hunt who was hastily appointed after the market reaction to Liz Truss and Kwasi Kwarteng’s £45 billion unfunded tax cuts, was eager to underline this during his speech. With CPI inflation down to a lower than expected 4.6%, and better than expected GDP growth in 2023, the Chancellor confidently declared that this was a statement for a ‘country that had turned a corner’.

Higher tax revenue boosted Government funds and the Chancellor has used this windfall to deliver a package of measures designed to boost economic activity with the bulk of measures focused on businesses. The headline for individuals was a 2% cut to National Insurance.


In contrast to the US, higher interest rates in Europe are making an impact on the economy. Many economic commentators are expecting that Europe will fall into a recession shortly and company profit warning and weak economic data have supported this.

Cuts in interest rates by the European Central Bank (ECB) are expected in April 2024 by market prices. The ECB has been pushing back on that expectation with a similar statement to other developed countries that it is watching the economic data and it expects interest rates to remain high for longer than expected.


The US economy has displayed resilience in the face of higher inflation and interest rates. Consumers in the US are still spending and have the potential to keep the economy going a little longer yet. The big question remains of how long savings built up in the pandemic will last and what will happen after this.

More generally, there is significant uncertainty around the US equity market given the upcoming 2024 election, the sustainability of high levels of Government debt and high equity valuations.

Emerging markets

Emerging markets have continued to underperform developed markets. This is due to weakness in China, concerns around geopolitics in Asia affecting Taiwan and concerns over conflict in Ukraine affecting Emerging Europe.

China fell back into deflation in October, with Consumer Price Index (CPI) falling 0.2% compared to last year. Hopes persist that this weak data along with the problems in the property market will persuade the Government to boost its stimulus. We concentrate on China as the single biggest country in the emerging markets so it plays a central role in driving sentiment towards the asset class.

Defensive assets

There is now zero expectation of another rate rise from Central Banks in Europe, the UK and the US. Central banks are holding rates steady as progress is being made on bringing down inflation, with the pace accelerating in the last few months. This means bond volatility should decline.

Now bonds are pricing in an increasing chance of European interest rate cuts in the first six months of 2024. The US market is now pricing in over 1% of interest rate cuts by the end of next year. We know that this sentiment could change again but comments from the Federal Reserve Chairman Jerome Powell that monetary policy in his view was ‘well into restrictive territory’ was received well by markets.

Of course we have been here before and if inflation settles at a higher rate than expected, or indeed starts to creep back up the call for interest rate rises may return.

Please speak to your Old Mill financial planner if you wish to discuss your portfolio.