Market Review week-ending 23rd January 2023 from Realm IM
Global stock-markets were generally higher last week despite some disappointing fourth quarter earnings from major US companies including Microsoft, IBM and Intel. Equities were higher on growing optimism that a recession in the US might be milder than previously expected (Bank of America), or avoided altogether (Goldman Sachs), and that the Fed may be able to pivot on monetary policy later this year as inflation cools fast.
Leading indicators do not necessarily confirm the more optimistic views. The Conference Board reported that its index of leading US economic indicators (LEI) fell in December for a tenth consecutive month – widely interpreted as signalling a US recession is ahead.
Data released on Friday showed that the Federal Reserve’s preferred measure of inflation, Core PCE (less food and energy), was up by 4.4% for the year through December. This is still above the 2% target but well off the 5.4% peak from early last year. This has heightened expectations that the Fed will slow its rate increases beginning with a softer hike of 0.25% this coming week.
In the UK, worse-than-expected PMI numbers released early last week showed that the contraction in the UK’s private sector had got worse with the data indicating the largest drop in business activity in two years. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said the numbers “underscore the risk of the UK slipping into recession” and meant that “the rate of economic decline gathered pace again at the start of the year”.
Investors are expecting the Bank of England to raise interest rates by 0.5% at this Thursday’s meeting to 4.0% in further efforts to tackle inflation.
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