MAGGIE PAGANO: Defying the doomsayers

The first trading day in 2023 got off to a flying start.

The FTSE 100 rallied 1.4 percent and European stocks hit their highest level in two weeks on hopes that the global economic outlook isn’t as dire as the doomsayers predicted.

Traders are again praying that the Federal Reserve will delay rate hikes.

They will scrutinize the minutes of the Fed’s December meeting, released today, to find clues as to what way — and how much — the next step will be.

The more upbeat mood was surprising given the dire warnings over the weekend from the IMF boss, Kristalina Georgieva, who predicted in a US TV interview that the “new year would be harder than the year we leave behind.”

Could it really be any worse than last year, a year when all of Wall Street’s major indices ended with their biggest annual losses since 2008, the fastest and most aggressive pace of rate hikes since the 1980s, and roaring inflation around the world?

Well, according to Georgieva, who predicts that a third of the world’s economy will fall into recession this year and that hundreds of millions of people will come under even more pressure.

Yet investors and traders seem to pay little attention to the IMF boss, who, like her predecessors, is always gloomier than necessary. And of course, the IMF often turns out to be spectacularly wrong.

But are the financial markets right to be cautiously optimistic?

While the near-term outlook looks dire, with Russia’s invasion of Ukraine looking set to end and China reeling from its covid policies, some of the pressure on energy and commodity prices is now easing.

Which in turn could lead to an easing of monetary policy as we head into a recession – surely that could turn out to be milder than the more extreme forecasts.

The latest drop in inflation data from Germany for December confirms this. Inflation fell from 11.3 percent in November to 9.6 percent, which was again lower than in October.

Although the annual figure was still at a record high of 7.9 percent, this monthly decline is a positive sign that energy and food prices are falling in the eurozone and in the UK.

But these are early days. As the latest Purchasing Managers Index showed, our manufacturing industry ended last year with its lowest output in more than two years as factories suffered from weak exports and job losses.

Industry contributes 10 percent to GDP, so this is terrible news for the sector, which blames energy prices, customs delays and post-Brexit red tape for the problems.

Retailers are also affected. Fortnum & Mason was unable to send a Christmas package as a gift to a German customer due to red tape.

This is a ridiculous state of affairs. It’s all very well for Rishi Sunak and Jeremy Hunt to play the long game, hoping that being boring will calm things down. It will not.

They need to resolve the strikes and improve our trade deal with the EU to help exporters.

If they want to make this year better than last, they should look again at the tax hikes coming into effect in April targeting the hard-pressed middle-income taxpayers, as well as the massive 6 percentage point corporate tax increase for businesses.

World Cup winners

It was the World Cup it won for Aldi. Sales of chips and nuts ahead of the final between Argentina and France on the Sunday before Christmas rose by more than 40 percent as viewers stayed home glued to their TVs.

Coupled with higher fresh food sales – and that heated bathrobe you didn’t know you needed – Aldi crossed the £1.4bn sales mark for the first time in December.

The German discounter – and rival Lidl – seems unstoppable. Since the 2008 crash, their combined market share has skyrocketed from 4.4 percent to 16.4 percent now.

They have a long way to go to catch up with Tesco and Sainsbury’s, but even they are sacrificing margins to keep up sales.

If the German duo can keep prices low, they have only one way to go.

Cold comfort

All of our local stores were sold out. It was the one-hit wonder of Christmas. I’ve heard of people driving through towns trying to track it down.

Unfortunately, the search wasn’t for new holiday gimmicks or games, but for Lemsip, the cure for colds and flu.

Stocks of the drug made by Reckitt Benckiser may be running low as the latest bug continues to spread. But no wonder the shares are rising. Another defensive stock.