Week ending 9th February 2024

As you can see from the accompanying table, markets closed the week broadly higher.

In a shortened trading week due to the Lunar New Year, Asian markets, including China, South Korea, and Taiwan remained closed on Friday. Investors digested China’s CPI data, revealing a 0.8% decline in January which surpassed the expected 0.5% drop and marked the fourth straight month of decline.

While the decline was influenced in part by seasonal factors, it underscores the potential for additional fiscal stimulus to reinvigorate the markets. The People’s Bank of China, in its latest quarterly policy report, pledges to provide flexible and precise policy support to enhance domestic demand, foreseeing a “modest rebound” in consumer prices. Despite China implementing measures such as releasing long-term cash for banks and issuing more government bonds for construction projects, this data may serve as the signal prompting Beijing to unveil stimulus measures amid challenges like a property market downturn, weak consumer demand, and deflationary pressures.

In the Asia-Pacific region, Japan’s Nikkei reached a fresh 34-year high on Friday, propelled by the central bank’s commitment to an easy monetary policy stance Bank of Japan (BoJ) Governor Ueda echoed the Deputy Governor’s remarks expressing a cautious approach towards raising interest rates, despite the central bank’s contemplation of concluding its negative interest rate policy. The rising service-sector prices, driven by companies increasing wages and passing on labour costs, contribute to the bank’s growing conviction that conditions for phasing out stimulus are aligning. These remarks increase the likelihood of the BOJ pulling short-term interest rates from negative territory and making broader changes to its stimulus framework.

It was a positive week for Corporate America as another week of corporate earnings rolled on, with nearly 80% of S&P 500 companies surpassing Q4 2023 earnings estimates. The S&P 500 reached a historic high, hitting 5,000, driven by a renewed surge in big tech and optimism surrounding potential Federal Reserve rate cuts, enhancing the outlook for corporate profits. Earnings results underscore the resilience of the US, even in the face of higher interests and looming recession risks. Impressive gains from major players like Nvidia, Alphabet, Intel, Apple, Amazon.com, Microsoft, and Applied Materials infused Wall Street with positive momentum on Friday, as investors grew more optimistic about the economic outlook.

Investors await next week’s US consumer price data to gauge if the recent strength in the US economy sparks an inflationary rebound, potentially impacting rate cut expectations.

European markets experienced minimal movement this week, as limited economic data was available for investors to analyse. However, a notable development was the welcomed decrease in the continent’s largest economy’s inflation. Official data released on Friday revealed that German inflation dropped to 2.9% in January, aligning with preliminary data and down from December’s 3.7%. This decline was primarily attributed to a significant drop in energy costs.

Looking ahead, key economic data includes US and UK CPI, UK and Japanese GDP for Q4 2023, US core annual inflation rate, UK unemployment rate, US retail sales, and initial jobless claims. Hong Kong will be closed for trading on Monday & Tuesday. China’s mainland markets will remain closed next week in celebration of the Lunar New Year

Kate Mimnagh, Portfolio Economist

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