Global equity markets generally rose during January as investors drew encouragement from signs that inflationary pressures might be peaking and hopes that the US economy might manage to escape recession.
- US CPI fell for a sixth straight month
- US and eurozone GDP growth was stronger than expected in Q4
- Inflationary pressures intensified in Japan
US inflation continues to ease: global equity markets generally rose during January as investors drew encouragement from signs that inflationary pressures might be peaking and hopes that the US economy might manage to escape recession. The rate of inflation fell in the US for a sixth consecutive month, dropping to 6.5% in December as energy prices moderated. Meanwhile, wage data showed that the annualised rate of growth in average earnings fell from 5.1% in November to 4.6% in December.
“Germany’s economy contracted by 0.2% during the fourth quarter”
FOMC remains watchful: minutes from the Federal Open Market Committee’s (FOMC’s) December meeting showed that every member had agreed with the move to ease the pace of tightening. Nevertheless, officials maintained: “A slowing in the pace of rate increases was not an indication of any weakening of the Committee’s resolve to achieve its price stability goal”. The US economy performed more strongly than expected during the final quarter of 2022, posting annualised growth of 2.9% year on year. The Dow Jones Industrial Average Index rose by 2.8% during January.
Question-marks over Germany: the eurozone’s economy performed more strongly than expected during the final three months of 2022, posting quarter-on-quarter growth of 0.1% over the period and boosting hopes that the euro area might have staved off recession. However, Germany’s economy contracted by 0.2% during the fourth quarter, fuelling fears that the country might be heading for recession.
ECB will “stay the course”: at the World Economic Forum in Davos, European Central Bank (ECB) President Christine Lagarde observed that, although 2023 is not expected to be “a brilliant year … it is a lot better than what we had feared”. Nevertheless, the ECB will “stay the course” in tightening monetary policy until inflation has returned to its 2% target. The eurozone’s rate of consumer price inflation eased from 10.1% year on year in November to 9.2% in December as lower energy price inflation more than offset higher food prices. The Dax Index rose by 8.7% over January.
Japan bucks the inflation trend: Japan’s rate of inflation continued to rise to reach 4%, compared with the Bank of Japan’s target of 2%. In the face of intensifying inflationary pressures, the BoJ maintained its yield curve control policy and kept its key interest rate close to zero at its January meeting. Over January, the Nikkei 225 Index climbed by 4.7%.
To view the series of market updates through January, click here
