UK Enters Recession, Dow Sets New Record

Equities

On Thursday, the FTSE 100, Britain's exporter-heavy index, witnessed a 0.4% rise. This uptick in the market occurred amidst the backdrop of the British economy entering a recession in the latter half of 2023. The UK economy shrank by 0.3% in October-December, worse than previously expected. The FTSE 100's performance was bolstered by a decline in the 10-year UK gilt yield, which stood at 4.058%.

Close Brothers Group saw its stock plunge by 22.5% following their announcement of withholding dividends for the current financial year due to uncertainties surrounding a regulatory probe into the motor finance industry. Conversely, RELX, an information-and-analytics group, experienced a brief surge to a record high before easing back 0.7%, buoyed by the company's strong performance forecast for the year. Major oil companies like BP and Shell, along with Imperial Brands, a tobacco company, witnessed their shares dip between 1.3% and 3.3%, as the stocks trading ex-dividend.

Across the Atlantic, the S&P 500 closed with a 0.6% gain, setting a new record at 5,029.73 points. This slight gain surpassed its previous all-time high established the previous week. The Dow Jones Industrial Average followed suit, climbing 0.9% to reach 38,773.12, while the Nasdaq composite ascended by 0.3%, finishing at 15,906.17.

TripAdvisor saw its shares jump by 9.2% after reporting quarterly results that exceeded analysts' expectations. However, Cisco Systems, despite also surpassing anticipated results, saw its shares decline by 2.4% following a cut in its profit forecast for the fiscal year. Wells Fargo also made headlines with a 7.2% rise in its shares, following the removal of a consent order by regulators, dating back to 2016.

Forex & Commodities

On Friday, the US dollar continued its upward trajectory, marking its fifth consecutive week of gains. The dollar index rose by 0.13% to 104.40. This increase comes despite a 0.4% drop on Thursday, and the index is poised to achieve a weekly gain of 0.3%. Thursday's decline was a reaction to mixed US economic data, with January's retail sales falling more than anticipated, but other reports highlighting a tight labour market.

US activity is showing signs of softening, and the dollar's momentum is pausing. Market expectations regarding the Federal Reserve's rate cuts will continue to influence currency market volatility. Markets now predict an 80% chance of a Fed rate cut in June, a shift from earlier expectations of a March start to the Fed's easing cycle.

The Japanese yen weakened to 150.26 per dollar, staying around the crucial 150 level. Japan's Finance Minister, Shunichi Suzuki, ‘jawboned’ by expressing concern about the negative impacts of a weak yen. Japan might need to take concrete action if the yen continues to depreciate, especially if US Treasury yields rise further.

The euro fell slightly to $1.0761, approaching its three-month low of $1.0695. The British pound also declined to $1.2582, potentially facing a 0.4% weekly drop ahead of UK retail sales data for January, which is expected to show a 1.4% year-on-year decrease.

Gold prices are set for their second consecutive weekly decline, with spot gold remaining flat at $2,003.40 per ounce and losing over 1% this week. The reevaluation of rate-cut expectations following a spike in US consumer prices contributed to this trend.

Oil prices rose over 1% on Thursday, with Brent crude futures closing up at $82.86 a barrel and West Texas Intermediate crude futures at $78.03. This increase was partly due to a weaker dollar following the US retail data. However, an International Energy Agency report indicating slowing demand growth capped further gains in oil prices.