Market report: UK inflation surprise, China’s slowing economy and Apple’s smartphone dominance
- UK inflation edges back up showing the fight against the price spiral has not been won.
- Realisation that central banks won’t rush to cut rates is sinking in.
- China’s economy slows by more than expected in the fourth quarter, with deflation the big worry.
- Brent Crude hovers around $77 dollars a barrel amid ongoing Middle East tension and concerns about global economic slowdown.
- Apple overtakes Samsung taking the biggest share of the global smartphone market.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Frustration is in the air as UK inflation continues to prove stubborn. The slight rise in the headline rate to 4% is the last move companies and households wanted to see, as it pushes the prospect of interest rate cuts further down the line. There had been high hopes that with fuel costs falling and food price rises slowing, the headline rate of inflation would keep easing. However, rises in tobacco prices due to increases in duty helped pushed back up the headline rate. Although the cost of raw materials did fall by 2.8%, the cost of goods leaving factories ticked up by 0.1%. With inflation still double the Bank of England’s target, policymakers are still likely to stay ultra cautious about the prospects for interest rate cuts this year. Worries are still swirling about the effect on prices of delays to goods arriving from Asia, given that attacks in the Red Sea are disrupting around 20% of global shipping. The tight labour market here in the UK will also be a cause for concern, despite signs that wage growth is easing. Downwards pressure on inflation is still expected, with the World Bank forecasting global growth to slow, and the UK economy at the edge of recession, this should act as a further drag on demand. But the Bank of England is not expecting inflation to reach 2% until the end of 2025. So, although cuts are being eyed in 2024, more patience will be needed.
Higher-for-longer rate worries weigh on markets.
There is a growing realisation that central banks won’t be rushing to cut rates quickly, and even the Federal Reserve might be on go-slow. The ‘steady as she goes’ message was underlined by Fed policymaker Christopher Waller, who said that although inflation was in striking distance of the 2% target, the central bank should proceed ‘methodically and carefully’. With higher for longer rate expectations bedding back in, stocks slipped on Wall Street which extended into falls in Asia. There appears to be little momentum to help lift the internationally focused FTSE 100. Central banks are still facing the foe of stubborn inflation and geopolitical risk is widening particularly in the Middle East, with no end in sight for shipping delays which threaten to lift goods prices.
China’s economy slows adding to global growth concerns.
Right now, China’s economy offers little respite from tougher trading conditions in nations grappling with high interest rates. Its economic woes were underlined by the latest data showing growth in the fourth quarter came in below expectations, with the GDP reading of 5.2% a notch lower than forecast. Oil prices have nudged back as concerns about global growth have been reignited. With the Fed expected to be more cautious about cutting rates, the dollar has strengthened, which is also weighing on oil prices, given it makes the commodity more expensive to buy.
Apple takes Samsung’s crown as smartphone market leader.
Apple’s brand power is shining bright, as it steals the smartphone crown from Samsung. The tech giant has taken the biggest slice of the market, knocking its South Korean competitor off the coveted top spot for the first time since 2010. According to the IDC’s Quarterly Mobile Phone Tracker Apple’s shipments totalled 234.6 million in 2023, 20.1% of the market, while Samsung’s dropped 13% to 226.6 million, giving it a 19.4% share.
Samsung has suffered as consumers have turned more cautious about spending on bigger ticket items like new smartphones, given that many shoppers brought forward new purchases during the pandemic. Apple’s sales have also slipped but its armies of core customers are proving more resilient in tougher times. Many are clearly still eager to get their hands on the latest shiny new kit, helped by the company’s integrated services offerings which it bundles up. If you look at the last quarter, overall Apple’s net sales fell almost 1% to $89.5 billion, but iPhones and Services were the only product areas to grow. Samsung on the other hand is facing increased pressure from Chinese rivals who are offering cheaper Android devices such as Xiaomi and Transsion. But Apple is still bracing for a bit of a bruising with revenues expected to be flat in the current quarter. It’s still up against increased competition, like Huawei, in China, but so far it seems to be defending its position admirably.’’
