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US ECONOMIC GROWTH REMAINS REMARKABLY RESILIENT AS RATE CUTS APPEAR MORE LIKELY
Data Sourced from FE Analytics, and Bloomberg Finance LP
US ECONOMIC GROWTH REMAINS REMARKABLY RESILIENT AS RATE CUTS APPEAR MORE LIKELY
This week the European Central Bank and Bank of Japan surprised nobody by leaving interest rates on hold. However, the direction of travel does appear a bit clearer as the ECB seems a little more confident that inflation will fall as wage growth slows. Despite the ECB’s efforts to calm expectations of an early rate cut, weak economic data sustained hopes of a cut in the spring. The Japanese central bank is aiming for the same 2% inflation target but is coming from the opposite direction as it tries to shake persistently low inflation. It seems fairly confident that wage inflation remains high enough for price inflation to rise to target and stay there, so the end of negative Japanese interest rates remains realistic.The surprise this week came from economic growth in the US as annualised GDP increased by 3.3% in the final quarter of 2023. This is far higher than expected and follows strong growth in the previous quarter as consumer spending remains resilient. The surprise hasn’t changed the debate about interest rates as attention is focused on the timing of any cuts (or hikes in the case of Japan), rather than if they will happen.US ECONOMIC GROWTH REMAINS REMARKABLY RESILIENT AS RATE CUTS APPEAR MORE LIKELY
This week the European Central Bank and Bank of Japan surprised nobody by leaving interest rates on hold. However, the direction of travel does appear a bit clearer as the ECB seems a little more confident that inflation will fall as wage growth slows. Despite the ECB’s efforts to calm expectations of an early rate cut, weak economic data sustained hopes of a cut in the spring. The Japanese central bank is aiming for the same 2% inflation target but is coming from the opposite direction as it tries to shake persistently low inflation. It seems fairly confident that wage inflation remains high enough for price inflation to rise to target and stay there, so the end of negative Japanese interest rates remains realistic.The surprise this week came from economic growth in the US as annualised GDP increased by 3.3% in the final quarter of 2023. This is far higher than expected and follows strong growth in the previous quarter as consumer spending remains resilient. The surprise hasn’t changed the debate about interest rates as attention is focused on the timing of any cuts (or hikes in the case of Japan), rather than if they will happen.US: ENTHUSIASM FOR ARTIFICIAL INTELLIGENCE DRIVES S&P500 HIGHER
US equities shrugged off the difficult start to 2024 as technology stocks led the market to further gains. Many big technology stocks are delivering trading updates in the next few weeks and expectations for sales growth have driven some rapid gains. Chipmaker Nvidia’s share price has risen 24% since the start of January as investors expect demand for high quality microchips to keep growing. IBM’s shares also jumped this week as growth of its AI business drove Q4 sales. Netflix saw its shares rally following a big increase in subscribers following its crackdown on password sharing.Demand for advanced microchips is driving share prices of global stocks. South Korean chipmaker SK Hynix swung back to profit due to demand for chips with AI capabilities. ASML, a Dutch firm which makes chipmaking equipment, said Q4 revenues hit a record as sales increased 30%. Meanwhile, Q4 sales at Taiwan Semiconductor Manufacturing Co, Nvidia’s biggest competitor, were up 13% and it expects to see more demand this year.CHINA: POTENTIAL GOVERNMENT STIMULUS HALTS EQUITIES DECLINE
A rise in Chinese stocks mid-week interrupted their recent decline after Chinese Premier Li Qiang called for more forceful action to stabilise the stock market. Bank reserve ratios are being eased and should significantly increase liquidity in financial markets. The government is also expected to launch a stabilisation fund using the assets of state-owned businesses. The fund is expected to buy Chinese shares to help end the sell-off by retail investors. Chinese authorities have also restricted the flow of capital to offshore funds that allow Chinese domestic investors to buy overseas stocks in an effort to deter more selling.News of the intervention helped Chinese stock markets rise between 2% and 3%. However, sentiment among domestic retail investors appears very low. Many Chinese investors incurred big losses from property speculation in recent years and, with no signs of an end to the property sector’s problems, investors appear wary of further losses in financial markets.For more information regarding our weekly market reports, we encourage you to give us a call on 01732 746188 or send us an email at enquiries@foxgroveassociates.co.uk.
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