Markets last week – 29/01/2024

USA 

Major indexes hit new highs, but small-caps struggle

The S&P 500 and Dow Jones marked a week of intraday highs, closing January with gains. While large-cap indexes thrived, small-caps faced losses, with the Russell 2000 declining nearly 4.0%. Earnings reports, especially from tech giants, played a significant role in influencing market movements. The Federal Reserve meeting tempered hopes for a March rate cut, and strong job reports reduced the likelihood of future rate cuts. 

Signs of healing in manufacturing 

The manufacturing sector showed signs of improvement as revisions to January gauges indicated better-than-expected factory activity. Despite a rise in the 10-year Treasury yield post-job reports, it ended the week lower. Municipal bonds experienced strong demand, contributing to positive trends in the market. Both the high yield and bank loan markets exhibited favourable conditions. 

Europe

The STOXX Europe 600 closed the week roughly flat, with major indexes showing mixed performances. France’s CAC 40 and Germany’s DAX experienced declines, while Italy’s FTSE MIB gained. Yields on German, UK, and Italian bonds initially fell before a slight increase. The eurozone managed to avoid a recession in Q4 2023, and there was a slowdown in inflation. Gross domestic product (GDP) during the period remained the same compared with the previous three months and 0.1% higher than a year earlier complemented by expansions in Spain and Italy which partially offset a contraction in Germany. 

On the other hand, the Bank of England maintained steady rates but hinted at a potential rate cut, signalling a shift in its stance. The housing market in the UK showed signs of stabilization, with higher mortgage approvals and rising house prices. 

Japan

Japanese stocks gained, buoyed by strong corporate earnings. The 10-year Japanese government bond (JGB) yield fell, and the yen strengthened against the U.S. dollar. The Bank of Japan (BoJ) expressed confidence in achieving price stability, hinting at the possibility of policy normalization. 

Manufacturing weakens in January. 

Purchasing Managers’ Index (PMI) data for January revealed a modest decline in Japanese manufacturing conditions. The sector faced challenges with falling output and new orders, coupled with rising price pressures amid high raw material, labour, and fuel prices. 

China

Chinese stocks retreated amid concerns about the economic outlook. The Shanghai Composite and CSI 300 recorded significant losses, marking their worst performances in years. January’s economic data presented a mixed picture, with an improved manufacturing PMI but weak property sales. 

A Hong Kong court’s decision to order the liquidation of China Evergrande raised concerns about potential ripple effects on China’s financial system. Despite official intervention, the property market continued to face challenges, with weak sales and construction delays impacting developers and the housing industry. The company has since failed to reach agreement with its creditors since it defaulted on its offshore bonds since December 2021.