United States
This past week we saw stocks gaining for the second week as investors weighed key inflation data and the quarterly earnings season began in earnest on Friday. The Nasdaq Composite and growth-oriented sectors outperformed, aided by recoveries in some mega-cap technology names such as Amazon.com, Tesla, and Microsoft.
Investors spent much of the week for a reaction to the consumer price index report by the labour department on Thursday morning. It saw a general decrease in consumer inflation to 5.7%, as expected, marking it as its slowest pace in over a year. The week’s economic calendar was light, but some data suggested that the economy seems on the safe side, considering that inflation pressures eased, increasing hopes that the federal reserve would manage to achieve a soft landing.
Around 204,000 people applied for first-time unemployment benefits last week, according to the latest data from the Bureau of Labor Statistics. That’s down from the previous week’s total jobless claims and slightly below the pre-pandemic weekly average of 218,000. This data indicates continued resilience in the labour market despite inflation-fighting efforts by the Federal Reserve intended to cool the economy — which would ordinarily have a negative impact on the job market, resulting in layoffs.
With signs of a cooling inflationary state, the US treasury yields traded lower, with the yields on the benchmark 10-year US treasury note falling on Friday to an intraday low of 3.43%, which marked off its lowest level since the federal reserve’s last meeting in December. The investment-grade corporate bond primary calendar was active early in the week, although the level of new deals ultimately reached the low end of weekly estimates.
With signs of a cooling inflationary state the US treasury yields traded lower with the yields on the benchmark 10-year US treasury note falling on Friday to an intraday low of 3.43% which marked of as its lowest level since the federal reserve’s last meeting in December. The investment-grade corporate bond primary calendar was active early in the week, although the level of new deals ultimately reached the low end of weekly estimates.
Before and following the CPI data release, elevated cash balances and broad risk-on sentiment aided the performance of high-yield bonds, which were in high demand across sectors. This also suggested that the week’s new deals were a positive sign for market participants looking to stay invested, who tended to favour higher-quality names. The issuance pipeline appears to be filling up, with several companies expected to come to market in the coming weeks. Positive economic data and favourable technical conditions drove the performance of the bank loan market once again.
Europe
European stocks rose for the second week as better-than-expected economic data raised hopes of a brief and shallow recession. However, some central bankers predicted that interest rates would have to rise even further, dampening market optimism. In terms of indices, the Euro Stoxx 600 ended the week 1.88% higher, Germany’s DAX Index climbed 3.26%, Italy’s FTSE MIB Index advanced 2.40%, and France’s CAC 40 Index added 2.37%.
Official data show that Eurozone unemployment remained at 6.5% in November, as expected by economists. Meanwhile, investor sentiment improved for the third month in January. Sentix’s economic sentiment index rose to its highest level since June last year but remained in negative territory. This comes after official eurozone data released earlier this month showed that economic sentiment improved in December for the first time since Russia’s invasion of Ukraine began.
The UK economy grew by 0.1% in November, owing to large spending by consumers over the Christmas holidays and inflows from pubs and bars as the World Cup boosted activity. City economists said hard-pressed consumers had proven more resilient than expected despite the cost-of-living crisis, increasing the government’s chances of avoiding a prolonged recession. Huw Pill, Chief Economist at the Bank of England (BoE), stated in New York that the UK faced the risk of persistent inflation, implying that interest rates would likely rise again. This is due to supply chain bottlenecks, poor labour supply developments, and higher natural gas prices.
The German economy likely stagnated in the fourth quarter of 2022, after growing 0.4% in the previous three months, according to a first estimate from the national statistics office. The Finance Ministry said the data pointed to a milder, shorter slowdown over the winter. The economy expanded by 1.9% for the entire year, down from 2.6% in 2021, as the Russia-Ukraine war and surging energy costs curbed output. Meanwhile, the German Chambers of Commerce and Industry said that more than half of Germany’s companies suffered from labour shortages.
Japan
Japan’s equity markets gained over the week, with risk appetite supported by weaker US consumer price inflation momentum, which raised hopes that the US Federal Reserve would slow the pace of its interest rate hikes. The Nikkei Index rose 0.56%, and the broader TOPIX Index was up 1.46
As core inflation in Tokyo rose in December at the fastest rate in 40 years, speculation grew that the Bank of Japan (BoJ) could revise its inflation forecasts and assess the viability of further monetary policy adjustments at its next meeting.
In December, the central bank unexpectedly changed its yield curve control framework. As a result, the Bank of Japan (BoJ) was again forced to conduct unscheduled bond purchases to keep the 10-year Japanese government bond (JGB) yield around its new 0.50% cap, roughly where it ended the week. The yen rose to around JPY 128 per US dollar, up from around JPY 132 the previous week.
An article in Japan’s Yomiuri Shimbun newspaper, which added to speculation about the central bank’s monetary policy trajectory, fueled BoJ watchers this week. It claimed that the BoJ would examine the side effects of its ultra-easy stance at its January meeting, citing ongoing market interest rate distortions even after the December modification of its YCC framework. If market distortions cannot be corrected by the BoJ adjusting the amount of JGB purchases, for example, additional policy changes may be implemented. The Bank of Japan is also expected to raise its consumer price index forecasts for fiscal years 2023 and 2024 in order to get closer to its 2% target. However, while the revisions to the BoJ’s inflation forecasts are widely expected, further monetary policy changes may not be imminent until after the end of Governor Haruhiko Kuroda’s term in April.
China
Chinese stocks rose as a softer-than-expected increase in US inflation and optimism about the post-pandemic reopening outlook boosted sentiment. The Shanghai Composite Index rose 1.19%, while the blue-chip CSI 300 rose 2.35%, reaching a four-month high.
Hopes for a recovery in domestic demand in the coming months increased after Beijing abandoned its zero-COVID policy in December and officials increased support for the struggling real estate sector. Earlier this week, China issued a sizeable crude oil import quota in anticipation of an expected increase in energy demand as infections begin to fade and economic activity returns to normal. Reuters polled economists predicted a quick recovery for China’s economy once infections receded, forecasting 4.9% growth this year versus an estimated 3% growth rate in 2022.
On the trade front, China’s exports fell 9.9% in December from a year ago as global demand softened and rising infections disrupted activity after the government rolled back pandemic restrictions. Imports fell a better-than-expected 7.5%. For the full year, China’s trade surplus reached an all-time high of USD 878 billion as solid export growth for most of 2022, a weak yuan, and the rising price of goods boosted the value of exports.
Furthermore, China’s inflation rose to 1.8% in December as core inflation, excluding food and energy prices, increased slightly, while producer prices fell as virus-related disruptions curtailed industrial demand.
Market indices
| Index | Weekly Index | Year to Date | ||
| Currency | Local | Sterling Pound | Local | Sterling Pound |
| UK |
|
|
|
|
| FTSE 100 Index | 1.90% | 1.90% | 5.28% | 5.28% |
| US |
|
|
|
|
| S&P 500 Index | 2.70% | 1.28% | 4.20% | 2.62% |
| EU |
|
|
|
|
| Euro Stoxx 50 | 3.31% | 4.07% | 7.67% | 7.59% |
| Asia |
|
|
|
|
| Hang Seng Index | 5.96% | 4.47% | 12.44% | 10.67% |
| MSCI Emerging Markets Index | 2.92% | 2.74% |
6.35%
|
6.09% |
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