Equity and bond markets rediscovered their footing last week, gaining steam as the week progressed following a solid start to the earnings season in the US and (slightly) better-than-expected inflation data in the US and the UK.
The big six US banks all beat expectations for the fourth quarter as the earnings season got off to a solid start. None of the bank CEOs sounded overly cautious as far as the outlook, encouraged by what is likely to be a pro-growth Trump Administration and a regulation-lite approach. TSMC also released strong results and an optimistic outlook, providing support to companies across the semiconductor value chain.
Slightly better than expected inflation data in the US and UK provided a ray of hope that the Fed and Bank of England, respectively, might be more generous in their monetary policy easing in the months ahead. This took pressure off of both UST and Gilt yields, which were lower across the curve last week. Retail sales were a very different story though, with December retail sales blowing past expectations in the US while UK retail sales slumped during the holiday period. The weak UK retail sales data was another blow to the Labour government agenda although it helped ease the pressure on Gilts as the outlook for the UK economy darkens. The diverging economies in the US and UK sent Sterling lower, and the weaker Pound is boosting the FTSE 100 (because many of the FTSE 100 companies are Dollar-based or are exporters that benefit from a weaker Pound).
In Asia, China’s 4Q2024 GDP growth met government expectations albeit barely, coming in at 5.0% on the nose. This helped boost Chinese stocks, which were higher on the week after a poor start to the year. In Japan, the ground is being set for the Bank of Japan to increase its benchmark policy rate this coming week, causing stocks in Japan to weaken as the increasing likelihood of tighter monetary policy is digested.
Oil also pushed higher, now up over 8% in the first three weeks of this year. Gold was higher, too, as was Bitcoin, which staged a rally following news suggesting that incoming President Trump would sign an executive order early next week to prioritise the cryptocurrency market in the US.
MARKETS
WHAT’S AHEAD
Monday is both a US holiday (markets closed) and inauguration day, with Mr Trump scheduled to be sworn in. The world’s rich and famous will also be rubbing shoulders in Davos, with the annual World Economic Forum occurring all week (agenda here).
UK employment data will be released early in the week, ECB head Christine Lagarde will speak mid-week, and a slew of preliminary PMI data for January for the Eurozone, the UK and the US will be released on Friday.
Upcoming central bank meetings:
Bank of Japan: Jan 23-24
FOMC: Jan 28-29
ECB: Jan 29-30
Bank of England: Feb 6
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