Markets last week – 12/02/2024

USA 

Mixed benchmarks as small-caps and value shares shine 

The S&P 500 recorded its first weekly decline this year, primarily in large-cap growth stocks, while an equally weighted S&P 500 reached a record intraday high on Thursday. Despite a rebound in the small-cap Russell 2000 Index, the week experienced some volatility. Upside inflation signals, including a 0.4% rise in core consumer prices, added to investor concerns. Despite some positive remarks from Chicago Fed President Austan Goolsbee, Friday’s substantial upside inflation surprises led to further stock futures decline. 

Economic data, such as a 0.8% decline in retail sales and rising inflation, contributed to uncertainty. Investors adjusted rate cut expectations, with futures markets pricing in only a 10.5% chance of a rate cut in March, down from 65.1% a month earlier. The 10-year U.S. Treasury note yield surged to 4.33%, the highest since December 1. 

Municipal bonds rallied with low primary issuance volume, while investment-grade corporate bonds experienced spread fluctuations. High yield bonds faced challenges amid risk-off sentiment but found support from elevated cash levels. 

Europe

UK in recession; inflation steady 

European markets saw a c.1.39% gain in the STOXX Europe 600 Index, with positive signs in inflation and interest rate cut expectations. Germany’s DAX and France’s CAC 40 reached new highs, while Italy’s FTSE MIB and the UK’s FTSE 100 also showed positive movements. Core eurozone government bond yields rose, but peripheral yields, especially in Italy, fell. 

The UK entered a recession in Q4 2023, with GDP contracting 0.3%. Inflation held steady in January at 4.0%. The Bank of England’s response included Governor Andrew Bailey downplaying the recession, emphasizing recent indicators, and noting that services inflation remained too high. 

The European Commission lowered its 2024 eurozone growth forecast to 0.8%, citing inflation and higher interest rates. The eurozone economy stagnated in Q4 2023, following a 0.1% contraction in the previous quarter. 

Japan

Japanese markets rise; economy slips to fourth place 

Japan’s stock markets gained, with the Nikkei 225 up 4.3% and the TOPIX Index up 2.6%. Weak Q4 growth data led to uncertainty about the Bank of Japan’s monetary policy. The Japanese economy contracted 0.4% in Q4, slipping to the world’s fourth-largest economy. With sluggish domestic demand, a worse-than-expected slump marked Japan’s entrance into a technical recession, as locals increase the allocation of capital in overseas investments Japan faces structural challenges in weak growth and large capital outflows. 

China

Chinese markets were closed for the Lunar New Year holiday. Early data suggested increased consumer spending during the holiday, this was marked by a surge in rail trips over the first week of the holiday posing a 61% increase compared to last year’s stats. However, in as much as strong spending is welcomed by the Chinese government, analysts warned of challenges, considering coronavirus impacts in early 2023. China’s stock markets resumed trading on February 19.