Market Update

It was a bustling week for markets, brimming with economic data and central bank interest rate decisions.
In the U.S., business activity surged in January, with both services and manufacturing sectors accelerating. The Composite PMI reached a seven-month high of 52.3, while the manufacturing and services activity indices stood at 50.3 and 52.9, respectively.
Further positive news emerged as the U.S. economy expanded at an annualized rate of 3.3% in Q4 2023, surpassing expectations of 2%, driven partly by a 2.8% rise in consumer spending.
Core Personal Consumption Expenditure (PCE) inflation, the Federal Reserve's preferred measure, dropped to 2.9% year-on-year in December, its lowest level since 2021 despite robust holiday spending. This data underscores the Fed's success in combating inflation and suggests it is achieving a "soft landing," despite concerns over rising borrowing costs and potential economic slowdown.
China's central bank announced a significant reduction in bank reserves this week, providing reassurance to global investors. The People’s Bank of China (PBOC) plans to cut rates by 50 basis points (bps), the most substantial reduction in two years, which will affect the amount of cash banks must hold as reserves. This move is expected to boost liquidity for property developers, and markets responded positively with the Hang Seng rebounding nearly 4% after a sluggish start to the week.
In the UK, signs of economic resilience prompted investors to scale back bets on Bank of England cuts. The Composite PMI for January surged to 52.5, with services PMI showing robust growth at 53.8. However, the UK manufacturing PMI outperformed expectations at 47.3 but remained in contraction territory. Supplier delays due to disruptions in manufacturing supply chains, including increased freight wait times following Red Sea shipping route delays, posed challenges.
The FTSE 100 surged on Friday following positive news about the latest Consumer Confidence Index, which reached its highest level in two years at -19 in January, up from -22 the previous month and -24 in November.
The European Central Bank (ECB) opted to maintain current interest rates at its latest policy meeting, with ECB President Christine Lagarde emphasizing that decisions on interest rate cuts were premature, highlighting the institution’s commitment to data dependence.
This week also confirmed Ireland's entry into a recession over the last year as expected, with GDP falling by 3.4% year-on-year in Q4 2023. Higher interest rates have pressured the profitability of large multinational companies, significantly impacting Ireland's GDP due to the substantial output from foreign-owned multinational companies based in the country. Nonetheless, the domestic economy continues to demonstrate significant resilience.
Looking ahead to next week, the focus will be on the U.S. Federal Open Market Committee (FOMC) meeting, where interest rates are expected to remain unchanged. Jerome Powell's press conference will be closely watched for any signals of a hawkish or dovish stance.
Additionally, key data releases include U.S. consumer confidence, non-farm payrolls, and durable goods orders, alongside the Q4 corporate earnings season, with tech giants like Apple, Amazon, Microsoft, Alphabet, and AMD set to disclose their financial results.
In Europe, attention will be on Euro area Q4 GDP and CPI figures, as well as preliminary data on Germany's Q4 GDP. In China, focus will shift to the Manufacturing PMI and Caixin Manufacturing PMI, offering insights into the country’s industrial sector performance.