As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.
The U.S. stock market experienced a slight uptrend last week, albeit with a focus on growth stocks, particularly in the information technology sector. Semiconductor shares, including NVIDIA and AMD, performed notably well. The market's performance, however, was uneven; an equally weighted version of the S&P 500 Index recorded modest losses.
The week was marked by the early stages of the fourth-quarter earnings season, with only a few S&P 500 companies releasing reports. Boeing, a notable Dow Jones component, saw its shares drop sharply following an analyst downgrade and concerns over potential delivery delays for its 737 MAX airliners, though it later recovered most of its losses. Consumer optimism seems to be on the rise, with the University of Michigan's consumer sentiment index reaching its highest point in nearly three years. This surge in consumer confidence is seen as a sign that inflation concerns may be easing.
Federal Reserve rate cut expectations have shifted dramatically. Market predictions for multiple rate cuts in 2024 fell significantly, influenced partly by Fed Governor Christopher Waller's comments suggesting a slower and more cautious approach to rate cuts. Bond markets reacted to these developments, with yields on the 10-year U.S. Treasury note reaching their highest point since mid-December. In the corporate bond sector, investment-grade bonds saw negative returns as yields rose. Despite this, the high yield market remained supported by strong cash balances and limited new issuance, with most deals being oversubscribed.
European stock markets ended the week lower, with investors adjusting their expectations for interest rate cuts. The pan-European STOXX Europe 600 Index fell by 1.58%. National indices like France's CAC 40 and Germany's DAX also saw declines. In the bond market, yields rose across various European countries. German two-year sovereign note yields exceeded 2.7%, and UK two-year gilt yields hit 4.2%, driven by inflation data that dampened hopes for rate cuts. The European Central Bank (ECB) played a key role in shaping market expectations. ECB President Christine Lagarde indicated that rate cuts are more likely in the summer rather than spring, as previously anticipated by the market. Germany's economy narrowly avoided a technical recession, contracting by 0.3% in the final quarter of 2023 but avoiding two consecutive quarters of contraction. The UK, however, faced unexpected inflationary pressures, with the annual rate of inflation rising to 4.0% in December. This was coupled with a slowdown in wage growth and a significant drop in retail sales volumes, presenting a complex picture for policymakers.
Japan's stock markets witnessed growth, with the Nikkei 225 reaching a 34-year high. This was partly due to the yen's weakness boosting export-oriented companies. However, easing inflationary pressures have dampened expectations for a near-term shift in the Bank of Japan's monetary policy, particularly after the economic impact of the recent earthquake.
In China, the stock market faced a downturn, with major indices like the Shanghai Composite and Hang Seng Index experiencing significant weekly drops. China's GDP growth met the government's target, but retail sales and fixed-asset investment data revealed underlying economic weaknesses. The real estate sector continues to struggle, adding to the economy's headwinds. China's central bank, the People's Bank of China (PBOC), injected substantial funds into the banking system but kept the lending rate unchanged. This move, along with the expectation of further policy loosening, reflects ongoing efforts to stimulate demand amid economic challenges.
In summary, last week's global markets were shaped by a mix of cautious optimism in the U.S., recalibrated expectations in Europe, and continuing economic challenges in Asia. These dynamics underscore the intricate interplay of regional economic policies and global market responses.
