Market Update

As anticipated, the Federal Reserve maintained interest rates between 5.25% and 5.5% for the fourth consecutive meeting. During the subsequent press conference, Jerome Powell hinted at a potential rate reduction later this year but emphasized a cautious, meeting-by-meeting approach and ruled out a cut in March. The Fed eliminated any mention of further rate hikes, citing improved balance in risks for employment and inflation goals. Despite persistent but slightly easing inflation, investors adjusted their rate cut expectations and shifted focus to processing earnings reports from major tech companies.
Investors initially faced a volatile week with mixed earnings reports from tech giants. While Microsoft, Google’s Alphabet, and AMD fell short of expectations, causing some initial concern, robust earnings from Amazon, Meta Platforms, and Apple helped restore optimism and boost stock prices.
Friday's US labor market data revealed that nonfarm payrolls surged by 353,000, exceeding expectations and underscoring the strength of the job market. The unemployment rate held steady at 3.7%. Hourly wages experienced significant growth compared to the previous month, marking the highest increase since March 2022. Additionally, separate data indicated a notable rise in US consumer sentiment. The market closed the week positively on the back of strong performances by big tech companies, suggesting that the labor market remains resilient. These solid data points are likely to dissuade the Federal Reserve from implementing anticipated rate cuts.
The Bank of England (BoE) chose to maintain its key Bank Rate at 5.25%, aligning with forecasts. Behind closed doors, a nuanced scenario emerged, revealing a split vote: two hawkish policymakers advocated for a 25-basis-point hike, while one dovish voice called for a reduction. Despite this divergence, the collective stance maintains a restrictive approach to anchor inflation toward the 2% target. The subtle shift away from signaling further tightening suggests a potential shift in policy direction as the central bank seeks to balance curbing inflation with fostering growth. Encouraging signs include cooler service sector inflation and a dip in wage growth, indicating the positive impact of previous rate hikes. Governor Andrew Bailey emphasized the need for confidence in inflation returning to the 2% target before considering interest rate cuts, despite market expectations of multiple cuts this year.
The Caixin China General Manufacturing PMI indicates ongoing resilience in China’s manufacturing sector as we enter 2024. Despite global uncertainties, the index held steady at 50.8 in January, consistent with December and slightly surpassing market expectations. This marks the third consecutive month of factory activity expansion, providing a positive contrast to official data indicating a prolonged soft patch as Lunar New Year celebrations approach.
In January 2024, the Eurozone experienced a slight year-on-year decrease in the inflation rate, dropping from 2.9% to 2.8%. The core rate, excluding volatile food and energy prices, also declined to 3.3%, slightly above forecasts at 3.2% but the lowest since March 2022. This easing may prompt central banks to reassess interest rates.
Despite challenging conditions, Ireland’s Manufacturing PMI showed resilience, rising to 49.5 in January 2024 from 48.9 the previous month. This increase reflects growth in output, export orders, and employment levels, highlighting the adaptability of Irish manufacturers.
Looking ahead, next week brings PMI services data from the UK, Europe, and the US, along with European retail sales and China’s inflation rate for January.