Weekly Market Wrap 20/01/2023

Equity markets this week failed to build on the strong start for stocks in 2023, ending the week lower as optimism for the global economy dampened. Central bankers vowed to continue on their journey towards higher rates, whilst earnings season has seen a number of weak corporate outlooks. UK retailers felt the effects of the cost of living crisis, despite UK inflation continuing to fall. The US government reaches its debt limit, whilst the World Economic Forum takes place in Davos.  

UK Market   

The UK market ended the week lower, as UK retail sales unexpectedly fell in December. Economists had expected a 0.5% increase in sales over the Christmas period, but instead saw a 1.0% fall as the ongoing cost of living crisis and double-digit inflation ruined hopes of a Christmas boost for UK retail. Consumer confidence also fell in December, falling from -42 to -45, when economists had expected a rise to -40. UK inflation fell slightly to 10.5% from 10.7%, in line with expectations. Despite a reduction in the headline figure, food and drink prices continued to rise, furthering the expectation that the Bank of England will raise interest rates to 4.00% in their February meeting. 

US Markets 

The S&P 500 is currently ending the week down 2.51% at 3,898 and the NASDAQ is down 2.13% at 11,295. Weekly jobless claims in the US fell last week, indicating continued strength in the US labor market despite the Federal Reserve’s attempts to cool the US economy. This data dashed hopes that the Fed could pause its hiking cycle, with markets currently pricing in a 25bps hike in February. The US Government has reached its debt ceiling, meaning a drawn out battle in congress between both parties is expected. The White House is currently refusing to negotiate with hardline Republicans, in the belief that eventually enough members will back down from their current demands. If the debt ceiling is not raised ahead of the June deadline, then the US government could risk defaulting on its debt payments. 

European Markets 

The Euro Stoxx 50 is currently down 0.44%% at 3,861, the DAX is 0.73% lower at 14,975 whilst the CAC 40 has fallen 0.56% to 6,984. German producer prices slowed in December, as energy costs eased, hinting at a continued fall in inflation for Europe’s largest economy. Despite the recent trend of slowing inflation in the Eurozone, European Central Bank President Christine Lagarde spoke out after a number of investors had recently reduced their expectations for how high the ECB would raise rates. Lagarde told a panel at the WEF in Davos “I would invite them to revise their positions” after investors bet on smaller rate hikes in upcoming ECB meetings.  

Asian Markets 

Chinese state media reported that COVID-19 pandemic was at a “relatively low” level and that the number of patients hospitalised and in critical condition was falling. The news sparked optimism around Chinese listed and China exposed stocks ahead of the Lunar New Year. Japan CPI hit a 41-year high at 4.0%, the 9th consecutive monthly reading above to 2.00% central bank target.  

Fixed Income  

Yields on the US 10-Year were flat across the week, as continued falls in US inflation measures push investors towards the consensus that the Fed will slow its pace of rate rises to 25bps in the February meeting. 

Commodities 

Brent Crude rose 1.44% this week to $86 per barrel, as strengthening economic expectations for China boosted the outlook for demand.  

The Week Ahead   

Monday – European Consumer Confidence 

Tuesday – UK, US, and European Manufacturing PMIs  

Wednesday – Canada Interest Rate Decision 

Thursday – US GDP 

Friday – US Consumer Inflation Expectations 

*Price changes as of last week’s close unless stated otherwise.