The US technology sector driving market returns has become all too familiar in recent times and that factor was firmly in play again last week. Artificial intelligence (AI) optimism fueled by expectations of significant earnings growth over the coming years has underpinned that momentum, and last week saw further strong moves in the semiconductor names plugged into that theme. The S&P 500 rose by +1.2% in local currency terms (+1.8% in GBP) with the tech dominant NASDAQ index jumping by +2.3% (+2.9% in GBP). Those moves came despite a retreat in Federal Reserve (Fed) rate cut hopes for this year which have moderated on the back of above forecast inflation data. The US 10-year treasury yield declined by 10 basis points (bps) to 3.95%, reflecting expectations of fewer rate cuts in 2024.

European equities concluded last week firmly in negative territory with the MSCI Europe ex UK index and the FTSE 100 posting weekly losses of -1.3% (-1.4% in GBP) and -2.1% respectively. Signals from the European Central Bank (ECB) that initial rate cuts may not arrive until the summer weighed on sentiment given that the market had been pricing in a first move in the spring[1]. Higher than forecast headline CPI inflation during December was a key factor behind the retreat in the FTSE100, despite the underlying core data remaining unchanged[2]. Elsewhere the Nikkei 225 in Japan added +1.1% in local currency (-0.6% in GBP) as further Yen weakness drove strong performance in the country’s major exporter. That helped the Nikkei to reach its highest level for 34 years. Meanwhile in China, the Shanghai Composite declined by -1.7% (-1.5% in GBP) for what was an eighth weekly decline in the past nine. Lower than expected GDP and retail sales numbers likely weighed on sentiment.

Concluding with commodities, oil prices declined slightly despite Middle Eastern tensions escalating during the week. China demand concerns may have ultimately been the deciding factor with Brent Crude falling by -0.4% to $78.72 a barrel. Copper prices also trended lower, falling by -1.4% to $8,241 a tonne with China worries and weaker central bank rate cut hopes the notable headwinds. Gold was largely flat at $2,053 an ounce, a modest weekly decline of -0.2%.

Week Ahead

Source: Refinitiv Workspace, 22/01/24

[1] T. Rowe Price – Global Markets Weekly Update 19/01/24

[2] ONS – CPI Inflation December 2023

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