Market Review from Realm Investment Management – week ending 20th January 2023
US stocks sold-off midweek on increasing recession fears but bounced back strongly on Friday. Comments from US Federal Reserve officials that the central bank has not finished with the tightening campaign worried investors – for instance, Fed Vice Chair Lael Brainard commented “policy will need to be sufficiently restrictive for some time”.
Things change day to day though and on Thursday weak economic data indicated that policy is having the desired impact and helped the view that the Fed can slow the pace of further rate hikes. The rally back on Friday was led by tech and growth stocks. Markets are now pricing in a 0.25% rate increase in February.
On the other side of the coin though, and for the longer term focus, US employment data is still indicating that the labour market remains tight (not what the Fed wants to see) evidenced by last week’s jobs report which showed solid growth and lower-than-expected unemployment claims.
UK inflation fell to 10.5% in December, in line with market forecasts, and down from a peak of 11.1% in October. That’s moving in the right direction but obviously still well above the Bank of England’s target of 2%. It is expected that the BoE will lift interest rates to 4% early in February but looking beyond that opinion is divided on how far rates will go. Today (Monday) the Pound reached its highest level versus US Dollar since June last year with GBPUSD briefly trading up to 1.2447.
In Europe, ECB President Christine Lagarde reiterated the European Central Bank’s commitment to aggressive policy tightening. Speaking in Davos at the World Economic Forum she said that inflation is “way too high. Our determination at the ECB is to bring it back to 2% in a timely manner, and we are taking all the measures that we have to take in order to do that.”
Chinese stocks out-performed last week with signs of improving economic conditions and the relaxing of pandemic restrictions (which also helped Oil futures close at a 10-week high).
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