Please see this weeks Weekly Market Commentary from Brooks Macdonald received yesterday afternoon:
US Federal Reserve (Fed) Chair Powell’s failure to push back on market expectations of interest rate cuts helps drive equities higher
Equity markets retreated on Friday as the market digested the latest US jobs data. That said, equities still made solid gains last week with US large cap technology names leading the way.
A strong US jobs report last Friday reiterates the current tightness of the US labour market
The US non-farm payroll report on Friday contained benchmark revisions and large beats, breaking the market complacency that had settled in after a strong January for risk assets. Revisions to the calculations in 2022 meant that the official numbers for nominal income growth have surged, suggesting an even more robust labour market than previously thought. Of course, the 2022 numbers have already filtered through to broader economic data sets including the inflation report, Gross Domestic Product reports etc, so the revision in some ways is pure history however given that labour market tightness continues to be a theme in 2023, there is some read-across. In terms of the headline jobs growth in January, 517,000 jobs were created versus expectations of just 260,000. As a result unemployment fell to 3.4%, the lowest level in half a century. There was some good news, with labour force participation (percentage of the workforce in work or actively looking for work) ticking up to 62.4%, which will provide some support to the narrative that higher wages are tempting back workers who voluntary left the workforce during the pandemic.
The positive market tone of 2023 was unscathed by a week of major central bank meetings
Last week saw a deluge of central bank meetings which, in aggregate, provided a more dovish tone than we have been used to in recent quarters. It was also a major week for economic data with inflation numbers from the Eurozone as well as key labour market inflation data from the US. This week we will see the release of the delayed German Consumer Price Index numbers with this figure closely watched to see if the disinflationary forces seen in January’s release are continuing. The US earnings season also continues this week and is joined by European oil majors such as BP and Total. Lastly, we will see whether US/China relations fray after the shooting down of a Chinese balloon which entered US airspace.
US/China relations are likely to come back into the spotlight this week with the US considering a further clampdown on Huawai’s access to US companies and now the Chinese balloon incident. Secretary of State Blinken was meant to be visiting China this weekend as part of an attempt to reset diplomatic relations. With this now postponed, and an aggressive Chinese reaction to the shooting down of the balloon, investors will be wary of a political change that could reverse the positive Chinese equity market story that has been in place since the COVID reopening.
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Andrew Lloyd DipPFS
7th February 2023