12th February 2024
Markets last week
Summary
Global equities had a positive week, rising 1.2%. UK equities finished slightly down, while the US market reached new all-time highs
The market narrative, particularly in the US, revolved around falling inflation and resilient economic performance; a surprising combination which had been deemed unlikely at the beginning of last year
The technology sector performed well, while financials, real estate, and utilities performed poorly, reflecting trends in Q4 earnings
Bond yields increased, with the UK 10-year yield surpassing 4% for the first time in 2024.
German industrial production declined by 1.6% in December, raising concerns about a potential recession
Chinese consumer prices recorded the sharpest decline since the global financial crisis
Next week US inflation is expected to show promising disinflation. Inflation in the UK is expected to rise slightly but still reflect a broader disinflationary trend. UK GDP growth in 2023 is anticipated to have scraped into positive territory.
Our analysis
It was a benign week for financial markets, with global equities finishing up 1.2%, driven by positive performance in Europe, the US and Hong Kong. UK equities finished the week slightly down, while the US equity market reached new all-time highs. The dominant market narrative continues to revolve around falling inflation and resilient economic performance, a combination that most economists thought mutually exclusive at the start of last year.
From a sector standpoint, technology continues to perform well, while financials, real estate and utilities performed poorly. This dynamic in stock returns has been driven by the similar dynamic evident so far in corporate results during the Q4 earnings season. Financials remain an area of concern, particularly the smaller US regional banks that are particularly sensitive to weakness in the commercial real estate market and to higher bond yields.
Bond yields rose steadily over the week, with the UK 10-year yield rising above the 4% level for the first time this year. Gilt yields continue to close the gap on US Treasury yields. The gap between the 10-year US and UK yields has shrunk to 0.1%. The UK 10-year yield closed the week at 4.09%, while the US 10-year yield ended the week at 4.18%.
It was a quiet week on the data front too. German industrial production surprised to the downside, accentuating concerns surrounding the state of Germany’s industrial-driven economy. Production in Germany fell by -1.6% in December, exceeding economists’ expectations of -0.5%. The overall production level is now at its lowest since June 2020, and, excluding the pandemic, it hasn't been this weak since 2010. Germany faces the possibility of a recession following a 0.3% contraction in the fourth quarter of 2023. Despite the economic challenges, there was some good news on inflation, which slowed to 3.1% in January. The resilience of Germany’s labour market has also surprised economists.
Chinese inflation data demonstrated the significant economic challenge the country now faces, as consumer prices recorded their sharpest decline since the global financial crisis, dropping by 0.8% in January - worse than anticipated. The producer price index fell by 2.5%, marking 16 consecutive months of producer price deflation. This has intensified pressure on the government to provide further stimulative support for their economy, particularly the need to bolster the real estate sector. Despite previous stimulus efforts, economic confidence remains low.
The Week ahead
Tuesday: US inflation
Our thoughts: Inflation in January is expected to have softened from 3.4% in December to 2.9%. Sticky core inflation is also expected to have softened, from 3.9% to 3.7%. If this is the case, market participants will breathe a collective sigh of relief, as the data points to potential rate cuts heading into the summer. The risk is if inflation comes in hotter than expected, which would result in increased uncertainty and market volatility; potentially disrupting the equity market rally.
Wednesday: UK inflation
Our thoughts: Headline inflation in the UK is expected to rise slightly in January, as services and energy component prices have risen. The inflation outlook in the UK is more clouded than the US, which transfers through to the outlook for UK interest rates and makes the Bank of England’s (BoE) job more difficult. The broader trend, however, continues to point to disinflation and rate cuts later this year.
Thursday: UK GDP
Our thoughts: Economists anticipate the UK economy grew 0.1% last year but shrunk at an annualised rate of -0.1% in the fourth quarter. This would represent two consecutive quarters of negative GDP growth, taking the UK economy into a technical recession. Although the BoE’s own forecasts are slightly more optimistic, the weak economy makes the case for the BoE to ease policy this year ever stronger.
Markets for the week
In Local Currency In Sterling
Index | Last Week | YTD | Last Week | YTD |
UK | ||||
FTSE100 | -0.6% | -2.1% | -0.6% | -2.1% |
FTSE250 | -0.6% | -3.2% | -0.6% | -3.2% |
FTSE All-share | -0.6% | -2.3% | -0.6% | -2.3% |
US | ||||
US equities | 1.4% | -5.4% | 1.3% | 6.5% |
Europe | ||||
European Equities | 1.3% | 4.3% | 1.2% | 2.8% |
Asia | ||||
Japanese Equities | 0.7% | 8.1% | 0.1% | 3.0% |
Hong Kong Equities | 1.4% | -7.6% | 1.3% | -6.8% |
Emerging Markets | ||||
Emerging Market Equities | 0.7% | -2.8% | 0.7% | -1.7% |
Government Bond Yields* | Current Level | Last Week | YTD | |
10-year Gilts | 4.09% | 17 | 55 | |
10-year US Treasury | 4.18% | 16 | 30 | |
10-Year German Bund | 2.38% | 14 | 36 | |
*Yield change in basis points | ||||
Currencies | Current level | Last week | YTD | |
Sterling/USD | 1.2628 | 0.0% | -0.8% | |
Sterling/EUR | 1.171 | 0.0% | 1.5% | |
Euro/USD | 1.0784 | 0.0% | -2.3% | |
Japanese Yen/USD | 149.29 | -0.6% | -5.5% | |
Commodities (in USD) | Current level | Last week | YTD | |
Brent oil (bbl) | 82.19 | 6.3% | 6.7% | |
WTI oil (bbl) | 76.84 | 6.3% | 7.2% | |
Copper (metric tonne) | 8169 | -3.7% | -4.6% | |
Gold (oz) | 2024.26 | -0.8% | -1.9% |
Sources: FTSE, Canaccord Genuity Wealth Management
Your weekly market review was powered by Canaccord Genuity Wealth Management (CGWM)
Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. Where investment is made in currencies other than the investor’s base currency, the value of those investments, and any income from them, will be affected by movements in exchange rates. This effect may be unfavourable as well as favourable. Past performance and future forecasts figures are not a reliable indicator of future results.
