In a busy week for earnings, results from the tech mega caps were mixed. Alphabet’s ad growth fell short of expectations while Apple’s better-than-expected quarterly revenue was overshadowed by a sales miss in China. Meanwhile Amazon climbed higher after its earnings topped expectations and Meta Platforms jumped over 20%, adding over $204.5bn to its market value, the largest such one-day gain for any US company. Advances in tech stocks boosted the major equity indices, with the Nasdaq up 1.1% and the S&P 500 up 1.4%, hitting an all-time high. It was however notable that gains were narrow, with the equally weighted S&P 500 seeing a small weekly loss.
Also keeping investors on their toes was the latest Federal Reserve meeting. The central bank left interest rates on hold, as expected, however chairman Jerome Powell signalled that a March rate cut was not likely. Hopes of an imminent cut were also dashed further following the release of the employment report on Friday. January non-farm payrolls came in above expectations at 353,000 jobs and average hourly earnings also surprised to the upside. While the jobs report pushed up the yield of the 10-year Treasury, for the week overall it ended lower.
The pan-European STOXX 600 ended the week roughly flat, having touched a fresh two-year high earlier in the week, supported by earnings reports, before losing steam. Most regional indices experienced slight losses although Italy’s FTSE MIB advanced 1.1%. Eurozone annual inflation eased to 2.8% in January, although core inflation came in slightly higher than expected, and could make European Central Bank policymakers cautious about their rate cut approach. Separately the eurozone economy narrowly avoided a technical recession, with fourth quarter GDP coming in flat.
Japan’s Nikkei 225 climbed 1.1% for the week, having seen its best monthly performance since November 2020. The weekly gain came despite a strengthening yen against the US dollar, given the Fed’s pushback on a March cut as well as the hopes for the Bank of Japan to normalise its monetary policy. Chinese equities were once again lower, unable to build upon the prior week’s gains. The Shanghai Composite fell over 6% in its worst week since 2018 while the Hang Seng fell 2.6%. Property market concerns continue to weigh with a Hong Kong court ordering China Evergrande into liquidation, and raises the question over whether the ruling will be upheld in mainland China. Purchasing managers’ index data was mixed, with the official manufacturing PMI remaining in contraction for January, while Caixin’s PMI beat expectations and saw its third consecutive month of expansion.
There was also plenty of central bank action in Latin America. Brazil cut its benchmark Selic rate by 50bps to 11.25% and also indicated that it would continue with such a cut for the following two meetings. Colombia cut its benchmark by 25bps to 12.75%, while Chile’s central bank was even more dovish and delivered a 100bps cut. Despite the cuts, for the week MSCI’s Latin America index ended 0.7% lower, and saw losses in January as investors scaled back US rate cut expectations and China economic woes which weighed on commodity prices.
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This document has been produced by the EFG Harris Allday research team utilising data from documents produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.