Weekly Market Commentary: Week to 27th January 2023
Market News
Equity markets delivered mild returns, despite an array of poor economic data announcements. Bond yields were also relatively flat leading to minor price changes with weakening conditions justifying potentially lower interest rate hikes across multiple developed economies. Figures released from the Office for National Statistics revealed further falls in retail sales by 1% in December as struggling consumers cut back their spending. UK house prices also recorded a sharp decline over the same period according to the latest Royal Institution of Chartered Surveyors survey. This was a reflection of a challenging environment for new buyers following increasing mortgage costs and heightened economic uncertainty. UK unemployment was unchanged at 3.7%, while wage growth surpassed expectations and continued its ascent starting in September. There was a noticeable drop in the number of job vacancies with economic uncertainty leading employers to hold back on recruitment. Despite continued strength in the UK labour market, CPI inflation declined for the third consecutive month. Prices fell to 10.5% in line with forecasts with the largest downward contribution coming from motor fuels as well as clothing and footwear and recreation and culture. Investors welcomed the news with this lowering the pressure on the Bank of England to hike interest rates at such an aggressive pace. Some trepidation remains over the upward pressures from the jobs market with this contributing to the overall rate of inflation. While prices were falling in the UK, in Japan inflation rose to 4%, the highest level since January 1991 following rising commodity prices and weakness in the yen. The anticipated rise was not enough for the Bank of Japan to consider raising interest rates, to follow the trend of other principal developed market central banks. Rates were maintained at -0.1% by unanimous vote with policy-makers more mindful of further deteriorating economic growth, noting forecasts had already been cut for 2023. The Chinese economy expanded 2.9% year-on-year in the fourth quarter of 2022, lower than 3.9% the previous quarter, but higher than 1.8% expected. The full year marked the second lowest growth since 1976 driven in part by the country’s stringent Zero Covid policy of widespread lockdowns and testing. Reports followed from China's Centre for Disease Control and Prevention stating that the current wave of infections had impacted around four-fifths of the country’s population.
Markets Snapshot - at 08:50am GMT 20/12/22
Stock Focus
Microsoft has announced a multi-billion-dollar investment in OpenAI, the firm behind the program ChatGPT. Exact details have not been disclosed, but the company said it was investing billions of dollars in a "multi-year" agreement. Microsoft first made a $1 billion investment in OpenAI in 2019 in an agreement that conferred the tech group first rights to commercialise the artificial intelligence technology. Despite a broader tech market downturn, where tens of thousands of tech workers have lost their jobs, AI start-ups are seeing a flood of investment. Dignity, the UK's biggest funeral provider has agreed a takeover that values its equity at about £280 million. The buyer consortium of Phoenix Asset Management Partners, SPWOne V and Castelnau Group, which already owns 29% of Dignity, agreed to pay 550p per share for the remaining 71% it doesn't own. This represents a near 30% premium on the closing share price on 3 January 2023 - the day before the company revealed it was in talks with a buyer. Dignity was part way through a turnaround strategy, which has hit profits as it sought to cut prices to gain market share. Alphabet, the parent company of Google, has announced it is to lay off 12,000 people worldwide. This represents around 6% of Alphabet's global workforce and is understood to include staff in teams across recruitment, engineering and products and some corporate functions. It comes as tech workers across the industry are losing their jobs following the reversal of the tech sector boom seen during the pandemic. Microsoft announced it is cutting around 5% of its staff - 10,000 jobs - and Amazon is set to cut 18,000 jobs. The Week Ahead
A busy week ahead sees eagerly anticipated central bank meetings in the US, UK and eurozone accompanied by some of the most important monthly economic data releases. The latter include US labour market and eurozone inflation data as well as worldwide manufacturing and services PMIs, all of which will help assess growth and inflation conditions around the globe at the start of 2023. The week also sees updates to Q4 GDP from Germany and inflation figures from Germany, South Korea and Indonesia. Markets stay relatively quiet early Monday as investors move to the side-lines to gear up for critical central bank policy announcements later in the week. Following the modest recovery witnessed in the second half of the previous week, the US Dollar Index continues to fluctuate in a tight channel at around 102.00. The benchmark 10-year US Treasury bond yield holds steady near 3.5% and US stock index futures trade modestly lower on the day. Business and consumer sentiment data from the Eurozone and German Gross Domestic (GDP) figures will be looked upon for fresh impetus later in the session. The US economic docket will feature the Federal Reserve Bank of Dallas' Texas Manufacturing Survey. GBP/USD struggled to make a decisive move in either direction ahead of the weekend and ended the week flat below 1.2400. In the early European session, the pair extends its sideways grind. While speaking on Friday, UK Chancellor of the Exchequer, Jeremy Hunt, said that the best tax cut would be a "cut in inflation." The Bank of England meets this Thursday to announce its latest interest rate decision. A 0.50 basis point raise is widely expected. EUR/USD closed the previous week virtually unchanged slightly below 1.0900. Although the pair edged slightly higher in the early trading hours of the Asian session, it is having a difficult time gathering directional momentum. German economy is forecast to post an annualized growth of 1.1% in the fourth quarter. Gold price staged a downward correction and erased its weekly gains in the second half of the week. At the time of writing, XAU/USD was posting small daily gains at around $1,930.
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