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Review 29Jan - 02Feb24: US Equities Surge on Robust Economic Data and Impressive Tech Earnings; Europe and Emerging Markets Lag Amid Concerns Over China

The Federal Reserve (Fed) and the Bank of England (BoE) held their policy rates steady in their recent meetings, as inflation neared their respective targets. While the Fed resisted calls for early rate cuts and largely ruled out a reduction in March, the BoE showed a slightly dovish stance, with one member voting for a cut.

In response, US equity markets initially experienced a sharp decline, but quickly rebounded as US economic data continued to outperform expectations. The S&P 500 closed the week up by 1.4%, led by robust gains in the Consumer Discretionary sector (+3.3%) and Information Technology (+2.7%). Energy and Real Estate were the only sectors to record losses over the week. In contrast, European markets lagged, with the DAX, CAC40, and FTSE100 all closing lower, despite improved inflation data.

Bond yields across Developed Markets (DM) and Emerging Markets (EM) fell significantly in a trend of bullish flattening or inversion, with notable exceptions in Colombia and Czechia. Long-term bonds in the US, UK, Canada, and Australia saw particularly sharp rallies, with Canadian 30-year yields dropping by 20 basis points.

The US Dollar strengthened towards the end of the week following an exceptionally strong Non-Farm Payrolls (NFP) report, which substantially diminished the likelihood of a Fed rate cut as early as March. In the Developed Markets, the EUR/USD fell by 0.5%, closing below 1.08, while the USD/JPY rose by 0.1%, finishing above 148. The Norwegian Krone (NOK) was the weakest performer against the USD, dropping by 1.8%. In the Emerging Markets, the USD/CLP saw a significant increase of 4.5% after the dovish 100bp cut from the Central Bank of Chile. Key data releases of last week:

  • Euro Area Avoiding Recession in 2023: Italy and Spain Top Estimates, Germany the Laggard in Europe (read more here)

  • US JOLTS Openings Rebound to Highest in 3 Months (read more here)

  • China's Caixin PMI Sustains Growth, Signaling Stabilization Amid Economic Challenges (read more here)

  • Disinflation in Eurozone Continues: Sticky Service Price Inflation Will Keep the ECB on Hold for now (read more here)

  • Fed Stays Put, Pulls the Plug on March Rate Cut Speculation (read more here)

  • BoE's MPC Maintains Rate Amid Split Vote: A Shift Towards Dovish Stance Emerges (read more here)

  • Latin America's Central Banks Continue Easing: Brazil, Chile, Colombia Cut Rates Amid Inflation Slowdown (read more here)

  • ISM Surprises, Buoyed by Jump in New Orders (read more here)

  • US Labor Market Thrives: Surging Payrolls and Wages with Unchanged Unemployment Rate (read more here)

  • CFTC Leveraged Money Positioning Update for the Week to Jan30 (read more here)


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