Market Update – 31st January 2024.

Significant news came out of the Eurozone this week in the form of GDP growth figures. On Tuesday, data revealed that contrary to bleaker forecasts of a 0.1% decline, the economy presented flat growth in Q4 of 2023. In technical terms, this means the Eurozone has defied expectations and deftly sidestepped a recession last year. Despite two of the Eurozone’s economies, France and Germany, posting no growth and contracting by 0.3% respectively, growth was underscored by notable contributions from Spain and Italy. The data is expected to put further pressure on the European Central Bank to start cutting borrowing costs as the region’s growth has stagnated against other major global players such as the US in recent years.

Across the pond in Japan, reports this week showed a 2.1% year-on-year rise in retail sales in December 2023, which slowed slightly from a 5.4% rise in November and came in slightly below market expectations. However, while consumers are perhaps somewhat paring back on spending, their confidence in the overall outlook of the economy is conversely going up. The consumer confidence index in Japan showed an uptick to 38 in January from 37.2 in December 2023 – the highest reading since December 2021. Taken together, the data shows that should Bank of Japan’s (BoJ) Governor Ueda push for wage growth in the economy this year – as he has said he will – consumers will be ready and willing to open their wallets further, which will help with the BoJ’s achievement of a sustained 2% inflation target.

Later today, the Fed will conclude their two-day policy meeting in which they will decide on whether to stick or twist regarding interest rates, which they have kept at 5.25%-5.5% since September 2023. The market awaits the results with anticipation, although it is pricing in another rate pause. Given the continued resilience of the US labour market and the fact that inflation has not yet dipped to the Fed’s 2% target, investors are expecting to see policy remain restrictive until at least March of this year, however they will be watching Fed Chair Jerome Powell’s announcement closely this afternoon for any emphasis placed upon the dangers to the economy of remaining in a high interest rate environment.

Finally, in Ireland this week, data showed that retail sales rose by 0.9% in December 2023 in comparison to a 0.5% rise in November, marking the second straight month of growth. Reports showed that notable consumption was made of motors and fuels (a 4.9% rise) and books and stationery (a 2% rise).

Alongside the Fed’s interest rate decision, we also await China’s Caixin PMI manufacturing data, Eurozone inflation and the Bank of England’s interest rate decision.

Kate Mimnagh, Portfolio Economist

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