Markets last week 22/01/2024

USA

Major indexes hit records.

The Dow Jones Industrial Average and S&P 500 reached new all-time highs, marking the 12th weekly advance in the last 13 for the latter. Despite broad gains, the small-cap Russell 2000 Index remained nearly 20% below its peak.

Focus on Q4 earnings.

With minimal correspondence from the Federal Reserve during the week, investors turned their attention to fourth-quarter earnings reports. Tesla’s disappointing results led to a sharp decline, while Netflix gained on strong subscriber additions.

Manufacturing improves, and business spending rises.

Mid-Atlantic manufacturing weakened, but national indices showed improvement. Business conditions strengthened in 2023, with nondefense capital goods orders rising in December. GDP growth exceeded expectations at 3.3%, and PCE inflation met targets. On the other hand, there was an upside surprise in jobless claims offsetting the strong economic data, leaving the 10-year U.S. Treasury yield relatively unchanged. Municipal bonds saw strong demand, while investment-grade corporate bonds had light issuance. Positive risk sentiment supported high-yield bonds. This was also supported by the S&P global services index surpassing expectations.

Europe

Stocks rise on corporate results and stimulus.

European stocks performed well as there was a reaction to the stimulus added to China’s economy. Most major indexes, including CAC 40, DAX, FTSE MIB, and FTSE 100, posted gains.

The ECB left interest rates unchanged to meet the 2% target, but signalled a potentially more dovish stance. Lagarde emphasized that data-guided decisions would help the ECB in making decisions in terms of determining interest rates going forward. However, Eurozone business activity shrank for the eighth month. Despite all this, markets predict that rate cuts may commence in April or June.

UK business activity rose more than expected in January, suggesting that the economy could avoid a recession. The highest level in seven months, from 52.1 in December. Even so, shipping disruptions in the Red Sea caused input prices in the manufacturing sector to rise for the first time since last April, which may contribute to a pickup in inflation.

Japan

Stocks decline, BoJ maintains an accommodative stance.

The Nikkei 225 and TOPIX Index fell, influenced by speculation on the end of Japan’s negative interest rate policy. BoJ kept rates steady, emphasizing the rising likelihood of achieving sustainable inflation. Citing the effects of the recent oil fluctuations, the reserve bank cited a downward revision on consumer inflation. Nevertheless, its medium- to long-term inflation expectations have risen moderately, with CPI inflation likely to increase gradually toward achieving the 2.0% price stability target.

China

Equities rise on economic support.

Chinese stocks gained as Beijing implemented measures to support the economy as the Shanghai Composite and Hang Seng Index recorded increases within the week. The People’s Bank of China cut reserve ratio requirements and lowered interest rates to boost agriculture and small businesses. The Chinese Reserve Bank of China proposed it would cut its reserve ratio requirement (RRR) by 50 basis points for most banks on February 5, marking the central bank’s first cut in banks required reserves this year. PBOC Governor Pan Gongsheng also announced that the central bank will lower interest rates by 25 basis points for refinancing and rediscounting loans to support agriculture and small businesses. This is all in an effort to increase stimulus within the economy which has since struggled.

China removed draft rules on online video games, easing concerns and restoring market value. PBOC’s pro-growth measures aimed to revive consumer confidence amid property downturn and deflationary pressure.

Weekly indices