US Stocks Rise on “Soft Landing” Hopes
Market Summary
Last week, investors focused on the recovery of stocks in the United States. Business activity in the eurozone improved due to increased consumer confidence. Domestic activity picked up significantly in China during the Lunar New Year holiday.
In the United States, stocks continued to rise. The U.S. economy expanded at an annualized rate of 2.9% in the quarter and the price index had an upside surprise, rising 3.5%. The core increased 4.4%, at the slowest pace in 14 months. In Europe, shares rose as some encouraging economic data points helped to overcome concerns about the pace of monetary policy tightening. Eurozone PMI rose to 50.2 from 49.3 in December 2022 and consumer confidence index rose to -20.9. Business activity in the UK fell to its lowest level in two years in January, as service sector output dropped.
In Asia, Japan’s stock markets rose over the week. Tokyo’s core consumer price inflation rose 4.3% year on year in January, and the yen weakened to around JPY 129.91 against the U.S. dollar, from about JPY 129.56 the prior week. Financial markets in mainland China were closed for the Lunar New Year holiday. China’s exports have declined for three consecutive months due to pandemic-related disruptions across the country and weaker external demand as many economies have slowed.
Major News
Goldman reported dismal earnings for the fourth-quarter of 2022 of just $1.3bn in profit. Its attempts to diversify out of volatile businesses and into consumer lending have disappointed.
The Chinese government targets consumption in bid to drive growth as hopes grow that Beijing’s abandonment of zero Covid policies will unleash flood of consumer spending, fueling a global rebound.
Japan and the Netherlands will restrict exports of chip manufacturing tools to China after reaching a deal with the US to make it harder for the Chinese military to develop advanced weapons.
A top American air force general has predicted about the likelihood of a conflict over Taiwan and that US and China will probably go to war in 2025.
What Caught Our Attention
After three chaotic years due to COVID, the world economy’s inflation is easing.
In America inflation is tumbling, raising hopes of a “soft landing”, in which price growth comes under control without a recession. China’s economy, freed from “zero-covid” policy, is poised to rebound. Markets are joyous.
However, a recession is still likely. If the Fed continues to keep rates high to reduce inflation until wage growth cools—even if that brings about a recession. Should America face a downturn, it is likely to take Europe with it. Despite falling energy prices, the euro zone also has an underlying inflation problem, as is apparent in rising wage growth. China’s extra imports will add more fuel to overheated economies.
Source: Kredens Capital, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia
