• UK services output helps bring 0.3% GDP growth.
• UK & US attack in Yemen bring rebound in crude.
• US bank earnings in focus.

Equity markets are regaining lost ground this morning as the losses associated with yesterday’s higher than expected US inflation gauge are steadily regained. The FTSE 100 has suffered for much of 2024 thus far, and this morning’s gains would therefore come as a welcome respite from recent selling pressure. Notably, the Nikkei 225 represents the only standout performer of all major indices, rising 6% in this month alone. That stands in stark contrast to the largely flat US indices and European declines. This morning saw UK growth data alleviate fears of a fourth quarter contraction, with the November GDP figure of 0.3% essentially reversing the October -0.3% decline. Traders have grown accustomed to somewhat erratic moves in monthly GDP over the course of this year, but the overall picture for the UK economy has been one of a soft landing without the protracted contraction many had predicted. Much of this comes down to the UK’s reliance on the service sector, with today’s November GDP figure almost entirely driven by a 0.4% bump in services output.

All eyes are on the energy markets this morning, with WTI pushing up through $74 in the wake of last night’s UK/US led attack on Houthi rebel positions in Yemen. While many will hope that this marks an escalation in efforts to secure safe transit for ships in the region, there is also a concern that we could see tensions escalate further. Nonetheless, while today’s crude oil gains are the typical market response to conflict in the Middle East, we are yet to see whether these actions make the situation better or worse for tankers travelling this key waterway.

Today sees US earnings season kicking off with a focus on Wall Street, as JP Morgan Chase, Citigroup, Wells Fargo, and Bank of America report their fourth quarter figures. In an environment of elevated interest rates investors will be keen to understand whether the benefits of higher margins are outweighed by the risk of huge unrealized losses on treasury positions. With the fourth quarter representing an advantageous time for equity bulls, there is an expectation that trading revenues will be a boost for investment banks in particular. The resilient nature of the US economy has ensured that it remains within positive growth this year, and markets will be keeping a close eye on any adjustments to bad loan provisions in response to a better-than-expected economic environment.