Weekly house view | Markets wait for earnings guidance

The week in review

Data showing the US economy still had some vim, plus improving consumer confidence, pushed the S&P 500 past its January 2022 record, with the index rising 1.2%[i] on the week (in USD). Helped by continued enthusiasm around AI, tech-related stocks were the main contributor, while the Nasdaq Composite managed to overcome a rise in bond yields to rise 2.3%[ii]. Market action was more subdued elsewhere, with the Stoxx Europe 600 down 1.6%[iii] (in euro) as the ECB doused hopes for early rate cuts and the MSCI China losing 5.8% [iv] (in USD) as foreign investors continued to pull back. 

The two-year US Treasury yield rose to 4.4% last week as investors grew more sceptical that the Fed would start cutting rates in March while the 10-year US Treasury yield rose to 4.14%. An unexpected acceleration in UK inflation and rowing back of rate cut expectations also led to bonds selling off in Europe, although corporate bond issuance remained vigorous everywhere. The US dollar rose as expectations for rate cuts were pushed back.

Geopolitical risk

Commercial ship traffic through the Suez Canal has hit the lowest level since a ship blocked the passage nearly three years ago, and this time the drop coincides with fewer crossings of the drought-hit Panama Canal. Many vessels are diverting around Africa, leading to longer transit times, and reviving concerns about inflationary pressures and higher oil prices.

Key data

Largely dragged down by Germany, industrial production in the euro area slumped for the third straight month in November, when it declined by -0.3% month-on-month (m-o-m). In Germany itself, official figures showed that GDP dropped by 0.3% in 2023. 

The 0.6% m-o-m increase in retail sales in December was better than expected and showed that US consumers continue to spend, while US industrial production edged up 0.1% m-o-m and 1% year-on-year (y-o-y). Initial jobless claims in the second week of January (187,000) were the lowest in the US since September 2022. The January University of Michigan survey of consumers surged to its highest level since July 2021.

China’s real GDP grew by 5.2% in 2023. However, nominal GDP, which assesses the value of goods and services at current value, grew by an estimated 4.2%, the lowest rate since 1976 (outside covid). Chinese industrial production rose 6.8% y-o-y in December, while retail sales climbed 7.4%.