Market Update Monday 23rd January 2023

Weaker economic data weighs on Wall Street

It was a mixed picture for global equities this week, as markets in the West digested poor economic data and hawkish remarks from central bank figures. Whilst in Asia, markets continued to rise off the back of China’s reopening from strict lockdown conditions. Markets in the US slipped this week after worse than expected US retail sales and manufacturing output in December. US retail sales for December declined by 1.1% more than the 0.8% forecast, whilst manufacturing production has fallen by 1.3% instead of the forecasted 0.3% fall.

Sentiment in US and European equity markets were also constrained by hawkish comments from Federal Reserve (Fed) and European Central Bank (ECB) figures. Despite signs of inflation peaking recently, Lael Brainard, vice-chair of the Fed, remarked that “We are determined to stay the course,” with regards to getting inflation down to target. As if to confirm their thinking, initial claims for US unemployment benefits in fact fell to 190,000 in the week ending January 14th from 205,000 in the previous week, indicating the labour market is perhaps more robust than the Fed would ideally like. Meanwhile ECB president Christine Lagarde at the World Economic Forum also echoed similar sentiments saying that “We shall stay the course until… we can return inflation to 2% in a timely manner.”
As of 9am London time, the main US index fell 2.51% over the week, whilst the US technology sector fell 2.05%. Europe also lagged, down 0.85%, whilst the UK market finished lower by down 0.89%.

Asian markets fare better

Despite the news that China’s GDP growth fell short of last years 5.5% target, investors there instead focused on the final months of Beijing’s abrupt U-turn on Covid lockdowns. This week as of 9am London time, the Shanghai index rose 2.18% whilst the Hong Kong index also rose 1.41%. Japan also fared better this week after their central bank decided against tweaking their yield curve control measures further. Their decision to maintain ultra-low rates sent the Yen almost 2% lower on the day, whilst Japanese stocks reacted positively, finishing the week higher by 1.25%. The Australian market also managed to finish in positive territory up 1.69% after employment figures came in softer than expected, reducing pressure for the Reserve Bank of Australia to raise interest rates.

Safe-haven bonds rally

In response to investors’ jitters over the health of the US economy, investors fled to the safety of core government bonds. As of 9am London time 10-year US treasury yields, which move inversely to their bond price, fell 8 basis points to trade at 3.42% whilst equivalent 10-year German bunds and Gilts also rallied. Their yields also falling by 5 and 4 basis points to trade at 2.11% and 3.32% respectively.

Oil continues its rise driven by China reopening.

Oil prices edged higher as investors expressed optimism that Chinese demand would recover. The International Energy Agency also said that with China moving away from its strict Covid-19 restrictions, crude demand is expected to hit a new record this year, while price-capping sanctions on Russia could reduce supply. Brent crude rose by 1.74% to $86.76 per barrel. Meanwhile Dutch wholesale gas prices continued their decline on expectations of strong supplies of liquefied natural gas and healthy stock levels in Europe. The Dutch Natural Gas Forward 1 month contract fell 5% over the week.