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 continued its bullish run, with both the Dow Jones Industrial Average and the S&P 500 Index reaching new all-time highs. This marked the 12th weekly gain out of the last 13 for the S&P 500, showcasing the strength of large-cap indexes. However, the small-cap Russell 2000 Index still lags, remaining nearly 20% below its all-time high.
Investors paid close attention to fourth-quarter earnings reports as Federal Reserve officials remained quiet ahead of an upcoming policy meeting. Major movers included Tesla, which faced a sharp decline due to missed earnings and revenue estimates, along with a cautious growth outlook for 2024. In contrast, Netflix enjoyed solid gains following a positive surprise in subscriber additions.
The economic calendar for the week delivered mixed results. Manufacturing activity in the Mid-Atlantic region fell short of expectations, mirroring trends observed in other regional gauges. Nevertheless, the S&P Global flash manufacturing index rebounded, entering expansion territory for the first time since April 2023 and reaching its highest level since October 2022.
Business spending showed strength, the core personal consumption expenditure (PCE) price index aligned with the Fed's long-term target, indicating stable inflation. Personal spending in December surpassed expectations, reinforcing the overall positive economic sentiment.
Weekly jobless claims surprised on the upside, counterbalancing the robust economic data and leaving the 10-year U.S. Treasury note yield relatively unchanged for the week. Municipal bond markets witnessed strong demand for new deals, while the investment-grade corporate bond market experienced light issuance.
Bank bonds notably outperformed the broader market on specific days. The high-yield bond market benefited from positive risk sentiment, while bank loan market investors remained focused on refinancing announcements, contributing to subdued secondary market activity.
The pan-European STOXX Europe 600 Index closed 3.11% higher in local currency terms, buoyed by encouraging corporate earnings and China's announcement of additional stimulus measures. The European Central Bank (ECB) kept interest rates unchanged and hinted at a more dovish outlook, driving most major stock indexes higher.
The UK's FTSE 100 Index, France's CAC 40 Index, Germany's DAX, and Italy's FTSE MIB all recorded gains. European government bond yields declined, and ECB President Christine Lagarde emphasized that policy decisions would be guided by economic and financial data. While
Eurozone business activity continued to shrink, signs of moderation emerged, and the UK's business activity surpassed expectations, potentially avoiding a recession.
Japanese stock markets experienced a slight decline, with the Nikkei 225 Index and the TOPIX Index both edging lower. The Bank of Japan (BoJ) maintained its accommodative stance but emphasized progress toward achieving sustained inflation, raising hopes of a potential shift in monetary policy. Expectations were tempered by softer-than-anticipated inflation data.
The BoJ kept its short-term interest rate target unchanged and maintained its yield curve control policy. The spring wage negotiations in Japan, known as "shunto," are a focal point, with a focus on inflation-beating wage hikes and their extension to small and medium-sized companies.
Chinese equities gained momentum as Beijing introduced measures to support the economy. The Shanghai Composite Index and the CSI 300 both recorded gains. The People's Bank of China (PBOC) announced a cut in reserve ratio requirements (RRR) and lowered interest rates to support agriculture and small businesses. Chinese banks left their loan prime rates unchanged, with analysts anticipating further pro-growth measures from the central bank.
In summary, U.S. markets hit record highs, European markets remained resilient, Japan navigated monetary policy decisions and wage negotiations, and China implemented stimulus measures to support its economy, contributing to overall positive sentiment in global financial markets.