Trading in equity markets was affected this week by the publication of January inflation data in the US and the UK. Signals that inflation is remaining sticky boosted expectations that central bank rates are going up and staying up in Europe, the US and even Australia. The global tightening wave that was supposed to have peaked is instead gathering strength. European equity markets did better than others thanks to better-than-expected corporate results.
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AMERICAS
The U.S. major averages turned in a mixed performance for the week. While the Dow Jones ended down 0.13%, its third negative week in a row, the Nasdaq climbed by 0.59% and the S&P 500 shed 0.28%. The weakness on Wall Street reflected ongoing concerns about the outlook for interest rates following the week’s batch of highly anticipated economic data. The annual inflation rate in the US slowed only slightly to 6.4% in January from 6.5% in December, less than market forecasts of 6.2%. Annual core (less food and energy costs) inflation stood at 5.6%, also modestly above expectations. Retail sales surged 3.0% last month, the largest increase since March 2021 and well above consensus expectations of around 1.8%. Consumer spending represents approximately 70% of GDP. Interestingly, the number of Americans living paycheck to paycheck jumped to 64% as of December. But, the strong retail sales and inflation prints underscored the potential for further Federal Reserve interest-rate hikes. Recent comments from Fed officials-including Cleveland Fed’s Loretta Mester and James Bullard (St Louis)- have added to the concerns, with some suggesting the central bank could raise rates by another 50 basis points in March.
EUROPE
European equities rebounded as good company results helped markets shrug off fears about additional interest rate hikes. A number of announcements of increased dividend payouts and share buybacks also boosted sentiment. The pan-European STOXX Europe 600 Index had a strong week, during which both the U.K.’s FTSE 100 and France’s CAC 40 hit record intraday highs. The blue-chip index in London closed above 8,000 points for the first time on Thursday, strengthening on factors that included bumper energy profits and inflation coming down faster than expected. UK retail sales also gave further hope of a more positive outlook, showing a 0.5% MoM increase and a -5.1% YoY decline, bad but not as bad as the -5.5% predicted. But the UK’s Consumer Prices Index (CPI) rose by 10.1% in the 12 months to January 2023, down from 10.5% in December 2022. The French blue-chip index also on Thursday rose to one point rose to 7,387.29 points, beating a lifetime high of 7,384.86 points, boosted by hopes that the euro zone will narrowly avoid a recession and surging shares of luxury goods groups that rely heavily on Chinese shoppers.
ASIA
Japanese stock markets generated mixed returns for the week with the Nikkei 225 Index falling 0.57%. Sentiment was dampened by Japan’s economy rebounding less than expected on an annualized basis in the three months to the end of December 2022. Gross domestic product (GDP) expanded 0.6%. Considerable uncertainties on the direction of monetary policy under new Bank of Japan Governor Kazuo Ueda also weighed. Ueda, an academic economist, was officially nominated by the Japanese government as the next central bank leader on Tuesday. ANBOUND’s researchers have noted that this great uncertainty of the BOJ’s policy trend is the main “black swan” affecting international capital markets this year. In China, equities were lower for a third consecutive week. Concerns over escalating geopolitical tensions with the U.S. hampered prospects of faster economic growth. The U.S. added Chinese firms to an export blacklist amid alleged links to a military-backed global balloon espionage program. The People’s Bank of China (PBOC)added more cash into the country’s fiscal system while keeping its key policy rate steady.
MIDDLE EAST
In Israel, trading in the Tel Aviv Stock Exchange (TASE) this week (Feb. 12-16) was marked by a mixed trend in the leading share indices. The TA-35 index increased by 1.2% while the TA-90 index decreased this week by 2.4%. The trend of trading on the TASE was affected by continuing disagreements over the impact of the planned legal reform on the Israeli economy and on the activity of foreign investors in Israel, and by the publication of inflation data according to which annual inflation increased to 5.4% in January 2023, a slight increase compared with the inflation rate in 2022. As a result, expectations are increasing for an interest rate increase in Israel on Feb 20. This is according to the information contained in the weekly stock market report, released by the TASE.
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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.17, 2023
“Weekly market wrap”. Feb. 17, 2023
“Weekly Market Recap”. John Hancock Investments. Feb. 17, 2023
“Schwab Market Update”. Charles Schwab. Feb. 17, 2023
“Market Analysis” Edmond de Rothschild. Feb. 17, 2023
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