FTSE 100 leads the way despite 2023 recession

• FTSE 100 leads the way despite confirmed recession
• German economy continues to struggle
• Dollar drives higher as Fed’s Waller warns of continued patience

The FTSE 100 has raced ahead in early trading this morning, catching the eye in a session that has seen European markets follow on from the upbeat tone struck in the US. Notably it has been an encouraging time for US investors hoping to see a more broad-based rally after a protracted period of reliance on the tech sector. With the FTSE 100 notably lacking in big-tech, the strength seen across the board in the US brings greater confidence for UK investors. Thankfully, the confirmation that the UK fell into recession in the fourth quarter has done little to dent sentiment, with the FTSE 100 index heading into the long weekend on the front-foot. The confirmation of a -0.3% fourth quarter reading does highlight that the so-called soft landing may have been a little softer than the Bank of England will have hoped for. Nonetheless, with inflation heading back towards target, the efforts at Threadneedle look to have guided the economy on a pathway that should allow for a rate cut in the coming months.

The German economy came back into the limelight today, with retail sales unexpectedly slumping by -1.9% in February. Unfortunately, this wasn’t the only bad news in Germany, with the bi-annual report from the German economic institute cutting their 2024 growth forecast from 1.3% to 0.1%. While the institute expect to see 2025 growth come in around 1.4%, the prospect of a somewhat lackluster year ahead puts pressure on the ECB to kick start the eurozone economy sooner rather than later.

The dollar retains its lead despite yesterday’s risk-on push for equity markets. With the dollar index trading at the highest level in six-weeks, the ongoing caution at the Federal Reserve does heighten the prospect of continued upside for the greenback. Commentary from Fed voting member Waller further reiterated the chance of further dollar dominance, stating that there is no rush to lower interest rates as things stand. The cautious stance from a number of Fed members does highlight a strong chance that the current pricing of a June rate hike might be somewhat optimistic. All eyes now turn towards tomorrow’s core PCE inflation gauge as a key driver of sentiment over what the Fed might do from here.