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Markets last week 31/01/2023

United States

The stock market resumed its winning streak, as investors appeared to welcome some encouraging signs that the economy might avoid a recession in 2023. Consumer discretionary stocks performed particularly well, thanks in part to a significant increase in Tesla shares last week following a positive outlook from CEO Elon Musk. Consumer staples, health care, and utilities, typically defensive, lagged. Similarly, value stocks underperformed growth stocks. 

Friday’s important inflation data came in precisely on target, appearing to support a modest rally to end the week. The Fed’s preferred inflation gauge, the core (less food and energy) personal consumption expenditures (PCE) price index, rose 4.4% year on year in December, remaining above the Fed’s 2% long-term inflation target but falling short of its 5.4% peak in February 2022 and rising at the slowest rate in 14 months. Friday also brought news that consumer spending fell 0.2% in December, a tad more than expected, indicating Americans resisted higher prices. 

Despite another arguably disappointing week of earnings reports from companies representing roughly 20% of the S&P 500 Index market, some companies realized some gains within the week. Microsoft, the index’s second-heaviest weighted stock, fell sharply after the company reported a larger-than-expected drop in earnings and a revenue slump expected to continue into 2023. IBM and Intel were also poor performers. 

Despite the mixed economic data, the benchmark 10-year treasury yields were unaffected. The yield on the 10-year Treasury note increased moderately over the week, supporting the investment-grade and high-yield bond markets. The municipal bond market was mostly calm, with increased inflows but light new issuance, while bank loans enjoyed solid demand in a generally “risk-on” enviro 

Europe

Shares in Europe rose as some encouraging economic data points helped to overcome concerns about the pace of monetary policy tightening. The pan-European STOXX Europe 600 Index ended the week 0.67% higher in local currency terms. Major stock indexes also advanced. Italy’s FTSE MIB Index gained 2.56%, France’s CAC 40 Index climbed 1.45%, and Germany’s DAX Index added 0.77%. 

With the current market conditions, business activity in Euro unexpectedly stabilized in January after a six-month contraction which made hopes rise for a recession to be avoided. The purchasing managers index, which measures manufacturing and services, rose to 50.2% from 49.3 in December last year. 

Consumer confidence in the eurozone increased in January, with the consumer confidence index rising to -20.9. Despite analysts’ expectations for a larger increase, the figure was the highest since February of last year. Meanwhile, investor sentiment in Germany improved at the start of the year, owing to lower inflation and a more positive outlook. According to S&P Global PMI surveys, business activity in the UK fell to its lowest level in two years in January as service sector output fell. 

The flash S&P Global/CIPS UK composite output index was 47.8 in January, down from 49.0 in December. However, optimism about the year ahead increased, presumably reflecting hopes for a turnaround in global economic conditions and easing cost pressures, according to S&P Global. 

Japan

Over the week, Japan’s stock markets rose, with the broader TOPIX Index increasing 2.90%. Investors were also paying attention to Tokyo’s core consumer price inflation, which rose 4.3% year on year in January, exceeding the Bank of Japan’s (BoJ) 2% inflation target for the eighth consecutive month and putting pressure on the central bank to tighten its ultra-easy monetary policy. 

Long-term interest rates have risen, and the yield curve distortions have not disappeared; however, market functioning may take some time to recover. The Bank of Japan stated that it is appropriate to continue monetary easing. However, it is necessary to revisit this at some point in the future to assess the balance of positive and negative effects. 

There has been upward pressure on long-term interest rates, and the distortions on the yield curve have not dissipated; however, it may take some time for market functioning to recover. The BoJ stated that it is appropriate to continue with monetary easing at this point, although it is necessary to examine this at some point in the future and assess the balance between positive effects and side effects. 

According to the most recent PMI data, Japan’s private sector activity returned to growth in January, but there was still a disparity between services and manufacturing. The government’s travel subsidy program and the relaxation of COVID restrictions aided moderate growth in the services sector. Conversely, the manufacturing sector’s health deteriorated as low demand weighed on output and new orders. 

China

The mainland Chinese financial markets were closed for the Lunar New Year holiday, which began on January 21 and will reopen on Monday, January 30. The Hong Kong stock exchange reopened on Thursday, with the benchmark Hang Seng Index up 2.96% for the holiday-shortened week. Domestic activity in China increased significantly during the weeklong holiday, fueling optimism about a faster-than-expected economic recovery as people took advantage of the break from pandemic restrictions. 

According to Ministry of Transport data, approximately 95.9 million trips were taken via road, rail, air, and waterways in the first four days of the holiday, for a daily average of 24 million trips, compared to 18.6 million during the 2022 break. outbound air tickets more than quadrupled for the entire year, while hotel bookings doubled. The offshore gambling hub of Macau received more than 71,000 visitors from mainland China and Hong Kong on Monday, marking the highest one-day total since the start of the pandemic. 

However, shipping cancellations at China’s major ports have increased as global demand has weakened. According to the Financial Times, citing supply chain data provider Drewry, cancellation rates from Asia are expected to reach 31% in the coming weeks, up from 23% last year and 16% in 2021. While cancellations around the Lunar New Year are common, this year’s rate will be “exceptionally elevated” as external demand declines. 

As many economies have slowed, China’s exports have declined for three consecutive months due to pandemic-related disruptions and softer external demand. Although Beijing rolled back pandemic restrictions in December, rising infections continued to disrupt activity. 

Market indices

Index 

Weekly Index 

Year to Date 

Currency 

Local  

Sterling Pound 

Local  

Sterling Pound 

UK 

 

 

 

 

FTSE 100 Index 

-0.07% 

-0.07% 

4.24% 

4.24% 

US 

 

 

 

 

S&P 500 Index 

2.47% 

2.57% 

6.09% 

3.27% 

EU 

 

 

 

 

Euro Stoxx 50 

1.45% 

1.63% 

10.27% 

9.03% 

Asia 

 

 

 

 

Nikkei 225 

0.00% 

0.00% 

14.02% 

10.61% 

MSCI Emerging Markets Index 

1.33% 

1.53% 

8.60% 

7.03% 

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