Investors took the firm messages from rate setters and the mixed bag of US statistics in their stride last week, while concerns about the global economic outlook outweighed the slowdown in inflation figures.

Bond yields eased in response, with the US 10-year yield back below 3.50%, while the German 10-year yield held steady around 2.15%.

In the US, manufacturing activity in New York State contracted sharply in January, with the index on current business conditions plunging 22 points to -32.9. Retail sales also fell by more than expected in December, decreasing by 1.1% after a 1% decline in the previous month. Excluding the automotive sector (vehicles, parts and petrol stations), retail sales contracted by -0.7%. Producer prices edged down by 0.5% in December month-on-month but rose by 0.1% excluding food, energy and trade services. On a 12-month basis, producer prices climbed by 6.2% in unadjusted terms and by 4.6% excluding food, energy and trade services. This compares with +7.3% and +4.9% respectively in November.

After dipping by 0.6% in November 2022, US industrial production dropped again last month by 0.7%, which was harsher than expected.

In contrast, the US labour market remains sturdy. Initial jobless claims fell by 15,000 in the week beginning 9 January to 190,000, down from 205,000 in the previous week. The number of people receiving regular benefits increased by 17,000 to 1,647,000 in the week beginning 2 January.

In China, gross domestic product (GDP) expanded by 3.0% in 2022 – one of the slowest growth rates in almost half a century – due to lockdowns and the property market collapse. Industrial production growth slowed to 1.3% year-on-year in December after rising by 2.2% in November, while retail sales fell by 1.8% last month after a 5.9% drop in November. However, the Chinese government’s decision to reopen the economy offers the welcome prospect of a sizeable recovery at a time when Western economies are facing headwinds.

The S&P 500 ended the week down by 0.27% while the tech-heavy Nasdaq, which is more sensitive to interest rate expectations, swung upwards by 1.27%. The Stoxx 600 Europe Index edged down by 0.10%.

Earnings releases will continue this week. Market participants will be watching for indications about how hard the economic slowdown is going to bite.

Source: Bonhôte

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