16 January 2024: 60k finance jobs were axed in 2023

2023 was a year of transition for the City of London.

The concerns over jobs being lost to mainland Europe following Brexit were realised, as both numbers of vacancies fell, and jobs lost rose significantly. This reversed the post-Covid employment drive that coincided with the increase in home working.

One of the more obvious effects of the downturn is seen in the profit warnings delivered in the past couple of weeks by recruitment firms.

The warnings made by the likes of Hays, Indeed and Robert Walters are being seen as the first signs of a substantial slowdown in the employment market in general.

This has raised concerns regarding the strength, or otherwise, of today’s publication of the December employment report. There could be a major surprise in the number of claimants, as it is estimated that 60k finance jobs were lost in 2023.

At the start of last year, most households tapped into their savings, if they had any, to offset the effect of rising inflation. Those who had not been fortunate enough to have had spare cash over the previous years were forced to utilize credit cards, which have seen debt increase noticeably.

It will be extremely difficult for credit card debt to be repaid and savings to be replenished as the economy continues to flatline and wage increases settle down as inflation falls. This secondary effect will be a major contributor to the expected fall in consumer confidence and retail sales.

Ahead of this week’s employment and inflation reports, HSBC has again lowered the rate it charges for fixed-term mortgages.

The largest bank in the UK didn’t advertise what the new rates would be, only that they would be lower than previously advertised. This is encouraging rumours that there will be another significant fall in the headline rate of inflation when the data is published tomorrow.

There continues to be speculation about the first G7 Central Bank to lower interest rates. Given the overall mood in the U.S. and comments from Eurozone Central Bankers made yesterday, the UK is now at the forefront of that list.

The pound lost ground yesterday and has fallen further in Asian trading this morning. It closed yesterday at 1.2726 and has so far (0400 GMT) fallen to a low of 1.2678 in Europe.

Versus the Euro, the Sterling fell to a low of 1.1610 yesterday and closed at 1.1620.

Goldman Sachs, the pre-eminent investment bank in the U.S. expressed its confidence in the length of time that the “goldilocks’ ‘ scenario will continue, and its doubts that a recession will happen in 2024.

It listed several reasons for its confidence, including an increase in its Q4 estimates for both GDP and corporate earnings. It has also increased its estimate for full-year 2024 GDP to 3.2% from 2.1%. That is the strongest level of expectation from any of the major Wall Street Institutions.

Meanwhile, Raphael Bostic, the President of the Atlanta Fed, and a voting member of the FOMC in 2024 gave his views on the timing of rate cuts and their effect on inflation.

Bostic believes that if rates are cut too soon, then it may see inflation “See-saw” which would adversely increase volatility in financial markets and lead to a weakening of the dollar.

It is highly unusual for an FOMC member to comment on the dollar. Since that is related to the “external economy,” that is usually left to the Treasury.

Bostic went on to say that the progression to lower inflation may take more time than is forecast, and there is a possibility that it could stall altogether.

He accepts that price pressures have fallen faster than had been previously expected, but when rate hikes were ended in September, he believed that since inflation will need to be firmly anchored at 2% before cuts are commenced, rates would remain as they are until the summer.

A lot will depend on the strength that is exhibited by the economy since his own economists’ predictions are for the 2% target to only be seen in early 2025, while it is likely to remain at around 2.5% at the end of this year.

Donald Trump is unlikely to spend much time off the front pages of newspapers between now and the summer as the election begins to both focus and divide the electorate.

The Iowa caucus took place yesterday and Trump is expected to win, cementing his place as the frontrunner for the Republican nomination.

Trump made an early victory speech to his supporters, saying that he wanted to “straighten up the problems of the world.”

The dollar index has rallied to test its medium-term resistance at 102.95, but it remains to be seen if it has sufficient momentum to break significantly higher at this time.

The “discussion” over when interest rates in the Eurozone will be cut is hotting up.

Austrian Central Bank Governor, Robert Holzmann gave a speech yesterday in which he cast doubt on whether the ECB will be able to cut rates at all this year given the slow pace at which inflation is falling.

When asked about market expectations of a first cut taking place in April, he replied that the market is likely to be disappointed.

Holzman believes that it is still too early to be discussing rate cuts with inflation still a significant concern and rate cuts could very easily reignite price pressures. Most commentators believe that the publication of Q1 wage data will be the catalyst for the first cut.

While Holzmann concedes that some conversation will take place around that topic at the meetings in the second quarter, there is currently little or no expectation of cuts being agreed.

His comments, while typically hawkish, contrast with the observations made recently by Bundesbank President, Joachim Nagel, who joined a growing group of Eurozone Central Bankers who agree with the market’s overall view that rates will be lowered by this summer.

The idea of a cut in Q1 is now considered highly unlikely, with early Q2 also considered too soon to be certain that inflation is defeated.

The possible split in the views of Austria and the normally more hawkish Bundesbank may provide the definitive change in the overall view of the Governing Council which leads to the four rate cuts in 2024 that is the base case of several market participants.

It is entirely possible that if the ECB delays the first cut until June, the economy may “demand” that several rate cuts be made in quick succession to avoid a long and potentially damaging recession.

Germany has been officially named as the worst-performing major economy. A report published yesterday showed that the German economy contracted by 0.3% last year as high inflation, rising interest and an energy shock took their toll.

GDP remains above its pre-pandemic level, as two years of rebounding output have provided a cushion.

The Euro was unchanged yesterday as the market tried to digest the news of a significant split in the outlook for interest rates.

It closed at 1.0951, just two points higher than the close on Friday.

Have a great day!