After rounding out 2023 with several weeks of solid gains, markets started the New Year on shaky ground as conflicting economic data in the US and ongoing tensions in the Red Sea weighed on sentiment. Kicking off with the US, rate cut optimism ran out of steam after the economy created a better than expected 216,000 jobs during December, smashing expectations by nearly 50,000[1]. Treasury yields subsequently rose, the 10-year jumping back above the 4.00% threshold to 4.18% as investors reassessed the possible path for Fed rates this year. Meanwhile in the Middle East, further Houthi attacks on ships traveling along the critical Red Sea shipping lanes added to growing conflict contagion fears. The appearance of an Iranian warship in the region compounded the issue[2].

The S&P 500 retreated by -1.5% in local currency terms with the technology heavy NASDAQ index faring even worse (-3.3%). In Europe, the FTSE 100 and MSCI Europe ex UK indices declined by -0.6% and -0.7% respectively. European equities had risen for seven straight weeks, reflective of growing optimism around future central bank rate cuts but that momentum was stopped in its tracks last week. Moving to China, the Shanghai Composite slipped by -1.5% as bearish sentiment continued to grip the market in the face of property sector woes. As for Japan, the Nikkei 225 declined by -0.3% with the market having only reopened on Thursday.

Elsewhere, oil prices edged higher in what was another volatile week for the commodity. Brent crude ultimately concluded the week +1.7% higher at $79.00 a barrel with the gain largely the result of those tensions in the Middle East. Gold posted a -0.6% decline on a modestly stronger US Dollar but remained above $2,000 at $2,056 an ounce. Copper prices also fell, the metal retreating by -1.2% to $8,361 a tonne. A further decline in China’s official manufacturing sector PMI was a headwind last week.

Week Ahead

Source: Refinitiv Workspace, 08/01/24

[1] Bureau of Labor Statistics – Employment Situation Summary, December 2023

[2] T. Rowe Price – Global Markets Weekly Update, 05/01/24

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