Weekly house view | Enchanted economy
The week in review
It was another good week for US equities as data was released showing the continued strength of the US economy, while the drop in core inflation announced on Friday providing a further boost to the S&P 500, which rose 1.1%i on the week (in USD). In a big earnings week, a couple of prominent companies issued disappointing forecasts, but stock markets were still driven forward by the thought of rate cuts. Reports that the authorities were considering ways to stabilise the faltering Chinese equity market gave a boost to the MSCI China index, which rose 3.4%i (in USD) on the week.
The rally in short-term US Treasuries in response to the inflation figures was outstripped by the one in short-term euro area bonds, in part thanks to comments from ECB president Christine Lagarde that were seen as opening the door to a potential rate cut in April. High-yield spreads fell, especially in the US. Oil prices rose strongly on Red Sea tensions, but gold prices slid.
"Consumers and households feel confident enough about their own personal financial situation and about the economic outlook to be spending in a way that's creating jobs, creating growth and is providing them with the income to go on doing that," Treasury Secretary Janet Yellen said.
GDP in the US grew at an annualised rate of 3.3% in Q4, according to preliminary figures, bringing growth in 2023 as a whole to a robust 3.1%. S&P Global’s composite purchasing managers index (PMI) for the US rose 1.4 points to 52.3 this month, its highest level since June. The headline personal consumption expenditure (PCE) index dropped to an annual 2.6% in December, while core PCE number fell to a three-year low of 2.9%. Personal spending in the US rose a strong 0.7% in December month-on-month.
S&P Global’s Flash PMI for the euro area pointed to improved manufacturing activity in January. The composite PMI rose only slightly, to 47.9 from 47.6 in December, disguising a jump in the manufacturing PMI that was partially offset by a drop in the services PMI.
The below-expectations core consumer price index for the Tokyo region in January (an annualised 1.6% versus 2.1% in December), was seen as relieving pressure on the Bank of Japan to ‘normalise’ monetary policy.