US equities rallied strongly last week, buoyed by cooling inflationary pressures and growing optimism that the American economy may avoid a recession this year. The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures index declined to a 14 month low of 4.4% during December, fuelling growing expectations that the Federal Reserve could slow the pace at which it lifts interest rates over the coming months. The S&P500 and tech-heavy NASDAQ indices rose by +2.5% and +4.3% respectively with growth driven companies outperforming their value tilted counterparts [1]. The 10-year US treasury yield rose by 3 basis points (bps) to 3.52%.
Elsewhere, the FTSE100 ended the week modestly lower (-0.1%) with the mid-cap FTSE250 rising by +1.7% despite Purchasing Manager Index (PMI) data showing business activity in the UK at its lowest for 2 years [2]. The 10-year gilt yield retreated by 6bps to close the week at 3.33%. On the Continent, the MSCI Europe ex UK index added +0.9% with French and Italian equities noticeably strong whilst in Asia, the Japanese Nikkei 225 jumped by +3.1% despite further signs of inflationary pressures rising. Financial markets in China were closed for the week as part of the Lunar New Year festivities.
Moving to commodity markets, oil prices paused for breath having risen sharply recently on growing demand expectations. Brent Crude declined by -1.1%, concluding the week at $86.66 a barrel. Copper declined by -0.7% to $9,242 a tonne although the metal remains more than +10.0% higher than it was three months ago having benefitted considerably from the China reopening trade. Gold meanwhile was flat at $1,929 an ounce. [3]
Week Ahead
Central bank policy meetings dominate the calendar this week with the Bank of England (BoE), European Central Bank (ECB) and Federal Reserve (Fed) all gathering this week. The BoE and ECB are both expected to lift base rates by 50bps, the former to 4.00% and the latter to 3.00% whilst the Fed is expected to move higher by 25bps to a range of 4.50-4.75%. In terms of data, Friday’s Labour Market Report in the US is amongst the standout publications due with unemployment forecast to have edged modestly higher last month. PMI equivalents from Institute for Supply Management are the other key US related numbers to keep an eye on this week. In the UK, the Bank of England publishes its monthly consumer borrowing report on Tuesday with the final revision of January’s services PMI due on Friday. It’s a busy week for Eurozone related data releases, the most notable of which include Q4’22 GDP, CPI inflation and unemployment. Concluding with Asia, PMIs are the key figures to monitor in China whilst in Japan, industrial production, unemployment and retail sales are all due for release. [4]
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[1] T. Rowe Price, 30/01/23
[2] S&P Global, 30/01/23
[3] Refinitiv, 30/01/23
[4] Forex Factory, 30/01/23
SJP Approved 30/01/23