In this Holiday shortened week in the US we saw markets make a strong recovery from the first few weeks of the new year. Get my take on where to from here as we have a lot of key data hitting the markets over the coming weeks.
MARKET SOUND BITES:
US indexes ended mostly higher over the holiday-shortened week, although the advance was narrow—an equally weighted version of the S and P 500 Index recorded a modest loss—and heavily focused on growth stocks.
Wednesday’s December retail sales numbers easily exceeded expectations, suggesting that the consumption side of the economy remained in a much more solid condition. Retail sales jumped 0.6% in October, with online sales growing 1.5% and hitting a new record high. On Friday, the University of Michigan issued a preliminary report that its index of consumer sentiment jumped in January to its highest level in nearly three years and by the most since 2005; over the past two months, the index rose the most since 1991.
Expectations for rate cuts in 2024 fell sharply over the week, with futures markets pricing only a 13.1% chance of seven or more rate cuts in 2024 as of the close of trading on Friday versus 61.5% the week before while the chances of a rate cut in March fell from 81.0% to 47.4%. The decline appeared due in part to comments Tuesday by Fed Governor Christopher Waller, who told a virtual conference that “I see no reason to move as quickly or cut as rapidly as in the past” given the healthy state of the economy. The benchmark 10-year U.S. Treasury note sharply higher for the week and to its highest intraday level since December 12 coming in over 4.15%.
Over in Europe, ECB President Christine Lagarde signaled it was “likely” that interest rates would be cut in summer, not spring as the market had increasingly come to expect. Meanwhile, the German economy shrank 0.3% in Q4 of 2023, but an upward revision to the previous quarter meant that Germany avoided a second straight quarter of contraction—the technical definition of a recession. However, GDP is estimated to have shrunk by 0.3% over the whole of 2023. And in the U.K. the annual rate of inflation defied expectations for further easing in December, ticking higher to 4.0% from 3.9% in November—the first increase in 10 months.
In Japan their core consumer price index (CPI) rose 2.3% year on year in December, down from November’s 2.5%. The in-line CPI print was the lowest since June 2022. This appeared to challenge the view of some investors that the BoJ could hike interest rates multiple times this year, as the central bank has repeatedly stated that it will maintain its ultra-accommodative monetary policy stance until it sees a sustainable rise in inflation driven by wage growth.
And finally in China, stocks slumped as the latest indicators underscored the weak outlook for the economy. China’s GDP expanded 5.2% in Q4 over a year earlier. However, other data highlighted pockets of weakness in China’s economy. Retail sales rose a lower-than-expected 7.4% in December from a year earlier, down from November’s 10.1% increase, while a decline in real estate investment deepened. China’s new home prices fell 0.4% in December, down from November’s 0.3% decline, marking the sixth consecutive monthly drop and the fastest fall since February 2015
Enjoy This Week’s Round-Up
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