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WeekWatch -‘Good economic data helped shares from across the globe surge last week’ January 23

WeekWatch -‘Good economic data helped shares from across the globe surge last week’ January 23

Good economic data helped shares from across the globe surge last week, with good news coming from China, the US and the UK.

Starting with the UK, data from the Office for National Statistics (ONS) showed the UK economy managed to grow by 0.1% in November. It was expected to shrink by 0.2% in the month. Football fans had a hand in this, as the ONS noted food and beverage service activities grew 2.2% ‘in a month where the FIFA World Cup started.’

The news means the UK has a good chance of avoiding a recession for now, although commentators have been at pains to point out this does not mean the UK is out of the economic woods just yet. Economic activity remains weak, inflation remains high, and it seems the Bank of England will continue to raise interest rates for at least the next few months. In other words, there is still a good chance the UK will enter a recession in 2023.

The GDP data only came out on Friday, which was too late to have much of an impact on the stock market. That said, UK equities have enjoyed a strong start to 2023, and this continued last week, with the FTSE 100 finishing the week up 1.9%. This means it’s now up almost 15% in the past three months.

Part of the reason for this was US inflation data, which showed another drop last week. This helped the S&P 500 grow 2.7%, while the tech-heavy NASDAQ spiked by +4.8%. Some of the larger members of the NASDAQ, like Microsoft and Amazon, have rebounded this year after a difficult 2022.

With inflation falling, investors are hoping this will lead the Federal Reserve to start cutting rates. On Monday last week, President of the Federal Reserve Bank of Atlanta, Raphael Bostic, said it was ‘fair to say that the Fed is willing to overshoot,’ indicating a willingness to push interest rates further. After the December inflation figures were released, he also said he would be potentially comfortable with a 0.25% rise at the next Reserve meeting if conversations with business leaders were consistent with slowing inflation.

So far, much of the conversation around markets has been dominated by inflation and interest rates. This will likely continue into the coming week, as the UK is due to release its December inflation figures, which are expected to show another small drop to an admittedly high 10.5%. However, looking further into the future, Kristina Hooper, Chief Global Market Strategist at Invesco, says: “Looking ahead, I suspect markets will become increasingly less focused on inflation as it continues to show signs of moderating and being well under control. In turn, that would mean greater certainty around central bank behaviour.

“I think markets’ attention will shift to economic growth. In particular, determining how much damage has been done by tightening in Western developed countries and when economies will begin to rebound.”

Another economic story which is looking to become increasingly relevant is China’s reopening after its COVID-19 lockdowns.

For example, Julian Evans-Pritchard, Senior China Economist at Capital Economics, notes: “We had expected disruption from China’s reopening wave of COVID infections to weigh heavily on activity well into Q1. But there is mounting evidence that much of China’s population has already been infected and that disruption is already fading rapidly. Coupled with a wider shift toward more pro-growth policies, this points to a reopening rebound starting this quarter and a stronger 2023 as a whole. We now expect China to grow by 5.5% this year.”

Invesco is a fund manager for St. James’s Place.

 

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