Thursday saw the preliminary release of fourth quarter GDP, where the economy expanded by 3.3%, beating the 2% consensus expectation. This helped to push the S&P 500 to a fifth consecutive record close. The following session saw the Federal Reserve’s preferred inflation gauge, the core personal consumption expenditure (PCE) index, cooled to a 2.9% year-on-year increase.
Tech has helped to propel much of the recent stock gains although they underperformed in Friday’s session. This was driven by shares in Intel sinking after the company gave a muted outlook which weighed on fellow chipmakers. While this caused the S&P 500 and Nasdaq Composite to snap their daily winning streak, for the week overall they still closed 1.1% and 0.9% higher respectively. The 10-year Treasury yield ended the week little changed at 4.159% with little action from Fed policymakers ahead of this week’s monetary policy meeting, which may provide clues to when the central bank may start cutting rates.
Chinese equities had been on a downward trajectory for most of January, however equities snapped back into action, logging gains on stimulus hopes. For the week the Shanghai Composite was up 2.8% while the Hang Seng index surged 4.2%. The People’s Bank of China announced that effective 5 February the reserve requirement ratio will be cut by 50 basis points. Alibaba shares saw a surge following a report that co-founder Jack Ma had bought $50m worth of Hong Kong shares in the fourth quarter. In addition, gaming companies got a boost after regulators removed draft rules aimed at curbing game spending.
In Europe, China-exposed luxury names managed to gain on the developments in China. Furthermore, LVMH delivered above-forecast 2023 sales, sending its shares higher as well as peers. These moves helped to push the pan-European STOXX 600 to its highest level in two years. Indeed, for the week the index rose 3.1%, and regional indices also notched gains. Meanwhile government bond yields slipped for the week overall. The European Central Bank held rates steady as expected while President Christine Lagarde delivered more dovish commentary than expected, stating that it was still “premature to discuss rate cuts”.
The Bank of Japan also left its policy unchanged but acknowledged that the likelihood of sustainable achieving its inflation target was rising. Later in the week the Tokyo inflation reading came in softer-than-expected. Japanese equities bucked the global trend and ended modestly weaker, with the Nikkei 225 down 0.6% to snap a two-week winning streak, amid a stronger yen.
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