Monthly global markets review - January 2024
Kondi Nkosi
A review of global markets in January, when equities saw mixed performance and hopes of imminent US rate cuts were dashed at month end.
The month in summary:
Stock markets were mixed in January with developed market shares advancing while emerging markets saw negative returns. There were signals from major central banks that interest rate cuts may not be forthcoming as soon as had been hoped. In bond markets, government bond yields rose (meaning prices fell). Oil prices moved up amid ongoing conflict in the Middle East and disruption to shipping.
Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
US
US shares advanced in January, supported by some strong corporate earnings and data suggesting a soft landing for the economy will be achieved. Hopes of imminent rate cuts also boosted shares, although such hopes were dashed by the Federal Reserve (Fed) at month end.
Communication services and information technology were the strongest sectors in January, supported by robust earnings and positive outlook statements from some of the “Magnificent Seven” large cap companies. By contrast, real estate and materials were among the weakest sectors.
Data showed that US GDP grew at an annualised rate of 3.3% in Q4 2023. For the year as a whole, GDP growth was 3.1%. Meanwhile, annual inflation (as measured by the consumer price index) ticked up to 3.4% from 3.1%. Labour market data remained firm with non-farm payrolls showing 216k jobs added in December and the unemployment rate steady at 3.7%. The ISM manufacturing (PMI) remained in contraction but ticked up to 49.1 from 47.1 in December (a reading above 50 for the PMIs – purchasing managers’ indices – indicated expansion, while below 50 implies contraction).
The Fed held a policy-setting meeting at the end of the month. Interest rates were kept on hold, as expected, at 5.25-5.5%. Comments from Fed chair Jerome Powell indicated that, while rates have peaked, a rate cut as soon as the next meeting in March is unlikely.
Eurozone
Eurozone shares posted a gain in January, led higher by shares in the information technology (IT) sector. The communication services sector also performed strongly. Sectors that had rallied in late 2023 on hopes of imminent rate cuts – including utilities and real estate – were among the weaker performers.
In the IT sector, shares of some semiconductor equipment stocks registered robust gains. While the sector faces a ban on the export of some high-end chipmaking equipment to China, demand elsewhere remains high. The software subsector also performed well.
Hopes of an early interest rate cut from the European Central Bank (ECB) began to fade after inflation (as measured by the consumer price index) for December was confirmed at 2.9%, up from 2.4% in November. However, inflation eased again in January with the flash estimate at 2.8% y/y. The ECB kept interest rates unchanged at its January meeting. However, rate cuts are still expected to come later in the year. ECB president Christine Lagarde said that “the disinflation process is at work”.
The eurozone economy registered zero GDP growth in Q4 2023. This followed a -0.1% contraction in Q3. This mean annual GDP growth for the single currency bloc was 0.5% in 2023. The German economy was the main drag on growth, shrinking -0.3% in Q4.
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