Markets last week 06/02/2023

United States

Most of the major indexes extended their winning streaks into February, aided by some positive surprises in economic data and fourth-quarter earnings reports, as well as what some saw as encouraging Fed signals. On Thursday, the S&P 500 Index reached an intraday high of 4,195, its highest level since late August. 

A 23% increase in Meta Platforms, Facebook’s parent company, on Thursday—the stock’s biggest daily gain in nearly a decade—provided a significant boost to the technology-heavy Nasdaq Composite Index and other mega-cap technology and internet-related growth stocks. The social media giant exceeded revenue expectations in the fourth quarter, and CEO Mark Zuckerberg provided an optimistic outlook for the coming year. However, some of the zeal faded on Friday after disappointing results and outlooks from Apple, Google’s parent company Alphabet, and 

Companies representing roughly one-third of the S&P 500’s market capitalisation released results of their quarterly earnings report. This coincided with a slew of closely watched economic reports, creating a slew of crosswinds for investors to consider. Earnings from GM, UPS, and other companies helped futures gain traction on Tuesday morning. Still, the real shift in sentiment came with the release of the Labor Department’s Employment Cost Index (ECI) as trading began. The ECI rose 1.0% in the fourth quarter of 2022, slightly less than expected and at its lowest level in a year, providing further evidence that a critical concern of Fed policymakers was being addressed. 

Last Wednesday, the Federal Reserve raised short-term interest rates by another quarter point, as expected. The chair acknowledged that the deflationary stage was in its early stages, owing to the healing of supply chains, which reduced the price of goods. Nevertheless, the major indexes jumped as investors seemed to interpret the overall tone of his remarks as more dovish than expected. 

Major surprises in Friday’s economic data caused investors to rethink their rate expectations, sending bond yields sharply higher. According to the Labor Department, employers added 517,000 nonfarm jobs in January, nearly tripling consensus estimates and the largest gain in six months. The unemployment rate fell to 3.4%, the lowest since 1969. 

Investors appeared to take the news mostly in stride, as the tight labor market did not appear to be translating into wage increases in proportion. The monthly increase in average hourly earnings was 0.3%, helping to reduce the year-over-year increase to 4.4%, the lowest level since August 2021. Another surprise on Friday was a surge in service sector activity in January. The Institute for Supply Management reported that its index of nonmanufacturing activity increased to 55.2 from 49.2 in December, reversing nearly all of December’s steep drop and returning it to expansion territory (the 50 level separates contraction from expansion) 

Powell’s ostensibly dovish remarks, reassuring inflation signals, and positive economic surprises sent the yield on the benchmark 10-year U.S. Treasury note on a round trip this week, falling as low as 3.33% in intraday trading on Thursday before rising to 3.53% on Friday, just above where it had ended the previous week. 


Europe’s stocks rose on speculation that central banks are nearing the end of the most restrictive phase of this monetary tightening cycle. The pan-European STOXX Europe 600 Index finished the week 1.23% higher in local currency. Major stock indexes rose as well. Germany’s DAX Index increased by 2.15%, France’s CAC 40 Index increased by 1.93%, and Italy’s FTSE MIB Index increased by 1.95%. The FTSE also outperformed partly due to the pound weakening to US dollar as the BOE suggested it would increase interest rates higher than expected. 

Government bond yields in Europe fell broadly as investors embraced the possibility that major central banks will change their monetary policy later this year. Despite the European Central Bank (ECB) raising interest rates by half a percentage point and signalling a similar move in March, Germany’s 10-year sovereign bond yield has fallen towards 2%. Government bond yields in France and Switzerland have also fallen. In the United Kingdom, where the Bank of England also raised interest rates, benchmark 10-year debt yields followed global counterparts and approached 3%. 

The European Central Bank raised key interest rates by half a percentage point, bringing the deposit rate to 2.5%. Because of underlying inflationary pressures, the central bank expects to raise rates by the same amount in March. The ECB went on to say that it “will then evaluate the subsequent path of its monetary policy,” with “future decisions remaining data-dependent and taking a meeting-by-meeting approach.” 

According to the most recent data, the eurozone’s headline inflation rate fell more than expected in January to an annual rate of 8.5%, down from 9.2% the previous month. However, core inflation remained at an all-time high of 5.2%, excluding changes in food and energy prices. In the final three months of 2022, the eurozone economy unexpectedly grew by 0.1%. 

As expected, the Bank of England’s nine policymakers voted 7-2 to raise the key interest rate by half a percentage point to 4%. According to the bank, headline inflation has begun to ease and is expected to fall sharply over the course of the year, reaching 3% in the first quarter of 2024. However, the Bank of England warned that “if there were evidence of more persistent pressures, further tightening in monetary policy would be required.” It also said that “the risks to inflation are skewed significantly to the upside.”. 


Japan’s stock markets had a mixed week, with the Nikkei 225 Index rising 0.46% and the broader TOPIX Index falling 0.63%. Expectations that the United States Federal Reserve’s monetary policy tightening cycle is nearing its peak boosted sentiment. The Bank of Japan (BoJ) reaffirmed its support for ultra-easy monetary policy. 

The 10-year Japanese government bond (JGB) yield increased to 0.49% from 0.47% at the end of the previous week. According to data released by the Bank of Japan, the central bank’s JGB purchases reached a new high in January as it sought to defend its 0.50% yield cap. The Fed’s easing of rate hikes and some expectation of a change in the BoJ’s easing stance boosted the yen, which rose to around JPY 128.58 against the US dollar from JPY 129.89 the previous week. 

In terms of economic data, Japan’s industrial production fell 0.1% month on month in December, a smaller-than-expected drop, while annualised retail sales growth of 3.8% exceeded expectations, indicating that the post-pandemic recovery in consumption is continuing. In January, consumer confidence increased, while the unemployment rate remained unchanged. Even though the final services Purchasing Managers’ Index were revised slightly lower, the survey found that services sector activity expanded rapidly in January, aided by the government’s travel subsidy programme. 


Chinese equities fell in the first full week of trading following the weeklong Lunar New Year holiday, as investors pocketed gains from a recent rally which made them concerned about the country’s recovery’s strength. The Shanghai Composite Index, which is weighted by capitalization, fell 0.04%, while the blue-chip CSI 300 Index fell 0.95%. According to Press release, the benchmark Hang Seng Index in Hong Kong fell 4.5% last week, the most since the end of October. 

In economic news, China’s official manufacturing Purchasing Managers’ Index (PMI) enhanced from 47.0 in December to 50.1 in January. This marked the first return to growth since September, as domestic activity improved after Beijing lifted its coronavirus restrictions at the end of the year. The nonmanufacturing PMI improved from 41.6 to a better-than-expected 54.4, its highest reading since June. Separately, the private Caixin/S&P Global manufacturing activity survey remained below 50 in January, separating growth from contraction, as output prices and new orders fell, and exports fell amid softening global demand. However, the Caixin/S&P Global services activity survey rose to a better-than-expected 52.9 reading in January, up from 48.0 in December. 

Meanwhile, the IMF raised its annual growth forecast for China as the economy rebounds after removing pandemic curbs. The IMF projected that China’s economy would grow 5.2% this year, up from its October forecast of 4.4%, and kept its estimate for 2024 at 4.5%. 

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