world markets

World investors embrace risk as Powell acknowledges disinflation

From 30/01-03/02/2023

1.8K views

It was an eventful week with central banks in the US, Europe and the UK all raising interest rates to fresh multi-year highs while signaling there is more tightening to come. However, it was the monetary policy decision from the Federal Open Market Committee (FOMC) that garnered the lion’s share of attention for the week. Markets initially shrugged off the hawkishness, however, and clung to a statement by Fed chair Jay Powell on Wednesday that the United States was in the early stages of “disinflation.” The markets also processed some services sector data across the globe.


hover over a country to see key data and over a black round marker to see the indices. click on the plus or minus sign to zoom in or zoom out. select the home button to get the map back to its original size


US

It was another up week for the US stock market – its fourth in the first five weeks of 2023. The Nasdaq surged 3.3% and the S&P 500 jumped by 1.6% while the Dow edged down by 0.2%. Some upside surprises in economic data and quarterly earnings reports as well as what some saw as encouraging signals from the Federal Reserve helped stocks rally. The US central bank raised rates by 25 basic points to 4.75% and said further hikes would be needed. However, during his press conference, Fed Chair Jerome Powell acknowledged that the world’s largest economy was in a disinflationary process that might lead to a soft landing and soon warrant a pause in the bank’s tightening cycle.

The Labor Department reported that non-farm payroll employment soared by 517,000 jobs in January after surging by an upwardly revised 260,000 jobs in December. The unemployment rate slipped to 3.4%, the lowest since 1969. Other macroeconomic data in showed wage inflation decelerating to an annualised 4.1% and a drop in PMI confidence figures.

ASIA

Japan’s equities registered mixed performance for the week. The Bank of Japan (BoJ) reiterated its commitment to ultra-loose monetary policy but the central bank has seen its ultra-loose policy come under attack by investors betting it will hike interest rates when Governor Haruhiko Kuroda’s second, five-year term ends in April, and those of his two deputies in March.

Chinese stock markets fell in the first full week of trading after the weeklong Lunar New Year holiday. The IMF projected that China’s economy would grow 5.2% this year, up from its October forecast of 4.4%, and kept its estimate for 2024 at 4.5%.

In India, a $550bn budget was unveiled by the government, one of its biggest ever increases in capital spending, to boost economic growth and job creation while aiming to lower the fiscal deficit before next year’s elections.

EUROPE

Stocks were higher with the the pan-European STOXX Europe 600 Index ending the week 1.23% higher and major stock indices also advancing. The European Central Bank raised its benchmark rate by 50bp to 2.5%, its highest level since 2008. But markets immediately interpreted the move as suggesting the tightening cycle might in fact end soon   just as they had done after Powell said there were signs inflation was easing. ECB President Christine Lagarde said another 50bp was scheduled for March but she refused to be drawn on what would happen afterwards. The Bank of England voted by a majority of 7-2 to raise interest rates by 50 basis points to 4.0%, in line with expectations, pushing the cost of borrowing to the highest level since late-2008.

On the data front, eurozone’s annual inflation rate fell to an eight-month low of 8.5% in January of 2023 from 9.2% in December, below forecasts of 9%. But core inflation—excluding changes in food and energy prices—remained at an all-time high of 5.2%. Meanwhile, the economy unexpectedly grew 0.1% in the final three months of 2022 but this was largely due to an exceptionally mild winter and a stellar performance by Ireland. The International Monetary Fund (IMF) said the UK would be the only rich economy to contract this year but grow next year.


Content Disclaimer:
This page has been prepared for informational purposes only. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.


For any comments, suggestions or corrections email: kbalkoudi@worldmarketsdaily.com

Kyriaki Balkoudi is a markets editor for World Markets Daily. She holds a bachelor’s degree in Balkans Studies from Aristotle University of Thessaloniki, Greece and a master’s degree in International Politics from City University London, UK.


References:
“Global Markets Weekly Update”. T. Rowe Price. Feb.3, 2023
“Weekly market wrap”. Feb. 3, 2023
“Weekly Market Recap”. John Hancock Investments. Feb. 3, 2023
“Schwab Market Update”. Charles Schwab. Feb. 3, 2023
“Market Analysis” Edmond de Rothschild. Feb. 3, 2023


Read previous week’ s WM Review
Read all WM Weekly Reviews
Read about world stock exchanges CEOs, insights, events & more