Market Briefing: 20th January

Global stock markets posted very strong gains last week, with the banking sector (in particular) rallying hard on some strong earnings numbers and also hopes of stimulative interest rate cuts. Today sees the inauguration of President Trump and then the focus will shift back to corporate earnings and the Bank of Japan’s interest rate decision (where we expect them to raise interest rates) at the end of the week.

Last week

• Global stock markets posted their best week since early November.
• Banking stocks drove gains following very strong earnings’ numbers.
• UK stocks bounced back, with domestic stocks faring best.
• Bond markets rallied as inflation data came in lower than expected.
• China hit its growth target for 2024.

This week

• US earnings season continues this week, with numbers from Netflix (Tuesday), Johnson and Johnson (Wednesday) and American Airlines (Thursday). We also have trading updates scheduled from easyjet (Wednesday), Britvic (Thursday) and Burberry (Friday).
• UK employment data is out on Tuesday.
• Japan will take the focus at the end of the week, with inflation data out on Thursday and their interest rate decision on Friday: we expect the Bank of Japan to be hiking interest rates from 0.25% to 0.5%.
• US markets are closed today (Martin Luther King Day) and today also sees the inauguration of President Trump.

Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.

More detail:

• Stock markets shrugged off recent concerns around rising bond yields and posted their best weekly gain since the US election in early November, with the global index rising by 3%. Within that, US and UK stocks both rose by 3.3%, with European share markets returning 3.1% on the week.
• US earnings season got underway last week, with some of the key Banks reporting. On the whole, results were extremely strong, with JP Morgan Chase, Goldman Sachs and Morgan Stanley all comfortably beating their expected earnings and revenue numbers. These strong results made for strong share price gains and made for the banking sector being the top performer last week in global markets. Trading activity and increased deal flow were cited as reasons for the strong numbers. Our view is that there’s also some optimism baked in that President Trump might further de-regulate this sector which in turn would further boost lending and drive more deal making in the US.
• The UK stock market posted a recovery last week, with the FTSE All Share rising by 3.3% and the FTSE 250 rising by 4.4%. These gains saw the FTSE 100 register a fresh all-time-high! Similar to the US, it was the Banking sector which was the stand-out (up over 6% on the week), with these stocks responding well to the lower UK inflation print which we believe opens the door to an interest rate cut in early February by the Bank of England. An interest rate cut would boost lending, boost consumer confidence and hence be good news for Banks. There were also some strong returns last week from the mining sector, helped by speculation around merger talks between Rio Tinto and Glencore.
• UK inflation (CPI) came in at 2.5% last week. This was a touch lower than the 2.6% number that had been expected (by economists surveyed by Bloomberg) and a touch lower than its prior level of 2.6%. This lower reading led to the bond markets pricing in an interest rate cut from the Bank of England at their 6^th February meeting.
• Bond yields fell on the week (as more interest rate cuts got priced into markets) which made for positive returns for bond markets. UK gilts returned 1.6% on the week, whilst UK investment grade markets returned 1.25%. Combined with the softer UK inflation number, there was also some weaker-than-expected data around UK growth (GDP) and retail sales. These 3 combined helped make the case for future interest rate cuts which in turn helped the bond market (as yields fell) and helped the equity market.
• US inflation data also came out last week and was a further driver in lowering bond yields and bringing forward expectations for interest rate cuts. Although US CPI held steady at 2.9%, the “core” reading for US CPI (which excludes food and energy) dropped 0.1% to 3.2%. This was the smallest monthly increase (in core CPI) since July of last year and the data showed the rental costs (which have been keeping US inflation elevated) have started to soften. Whilst we don’t think that the US Federal Reserve will be cutting interest rates at their upcoming meeting, this data does support the case for rate cuts later on this year.
• Chinese economic data came out on Friday and helped give global markets a nice boost to end the week. 4^th quarter growth from China came in at 5.4% which was better than expected. This helped make for 2024 growth for China of 5%: in line with their annual growth target and better than had been feared at the mid-point of last year. This news, combined with other decent Chinese economic data, helped drive strong returns in the Chinese stock market (which fed through to strong returns on the week for the emerging market index).

The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.

The content of this article is not intended to be or does not constitute investment research as defined by the Financial Conduct Authority. The content should also not be relied upon when making investment decisions, and at no point should the information be treated as specific advice. The article has no regard for the specific investment objectives, financial situation or needs of any specific client, person, or entity.