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1812 2023

Market Insights

Market Insights – Week 51

Bas Kooijman

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.

U.S. stock markets, including the S&P 500 Index, Nasdaq Composite, and Dow Jones Industrial Average, marked their seventh consecutive week of gains, with the Dow reaching an all-time high. This broad-based advance saw small-cap stocks, especially the Russell 2000 Index, outperform, exiting bear market territory. Elevated trading volumes and a focus on stocks with high short interest characterized the week.

Investor sentiment was buoyed by favorable inflation data, with consumer and producer price inflation aligning with or falling below expectations. The Federal Reserve's final policy meeting of the year indicated possible rate cuts in 2024, further lifting market spirits. Despite stronger retail sales signaling robust holiday shopping, manufacturing sector data showed unexpected weakness. Bond yields, particularly for the 10-year U.S. Treasury note, declined significantly following these developments.

European markets saw gains, with the STOXX Europe 600 Index rising for the fourth consecutive week, driven by anticipation of central bank rate cuts in 2024. Mixed performances were observed across major stock indexes, with France's CAC 40 gaining, while Germany's DAX and

Italy's FTSE MIB saw modest declines. The European Central Bank maintained its deposit rate at a record high of 4.0%, simultaneously lowering its growth and inflation forecasts, hinting at potential future rate reductions.

Eurozone business activity continued to contract, as indicated by December's Purchasing Managers' Index. The Bank of England held its benchmark interest rate steady, reiterating its readiness to adjust borrowing costs based on inflation trends. Additionally, the UK economy showed a contraction in October. Norway's central bank raised its key rate, while the Swiss National Bank kept its policy rate unchanged.

Japanese stock markets experienced a downturn, with the Nikkei 225 and TOPIX Indexes declining amid speculation of an early shift in the Bank of Japan's monetary policy. Strengthening of the yen and a contraction in Japan's GDP further pressured the markets. The Bank of

Japan's officials hinted at the complexity of policy normalization, and optimism among large manufacturers was noted in the BoJ's "tankan" survey.

In China, equities declined due to ongoing deflationary concerns, despite the Hang Seng Index's rise following the Fed's rate decision. China's consumer price index showed a significant drop, intensifying deflation worries. Industrial production and retail sales data provided a mixed view, with fixed asset investment growth slowing.

The People’s Bank of China injected substantial liquidity into the banking system, continuing its support against economic challenges. At the Central Economic Work Conference, Chinese officials outlined strategies to bolster domestic consumption and investment, addressing the risks posed by weak consumer confidence and the property sector downturn.

In summary, this week saw a dynamic global market landscape with U.S. stocks reaching new milestones amid favourable economic data, European markets rallying on central bank policy expectations, and Asian markets, particularly Japan and China, facing challenges from policy shifts and deflationary pressures.

Bas Kooijman

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