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Stocks had started the week on a downbeat note following an interview from Federal Reserve chairman Jerome Powell that aired on Sunday which prompted investors to reassess their interest rate cut expectations. A cut in March now looks to be firmly off the table. Wall Street managed to pick up later in the week, mainly fuelled by earnings amid a lack of notable economic data. There was also relief following the US Treasury Department’s record $42bn auction of 10-year notes.

On Friday, the S&P 500 managed to cross the 5,000-mark for the first time and added 1.4% for the week. The tech-heavy Nasdaq outperformed, up 2.3%, while the Dow Jones only ended modestly above the flatline. Once again, it was primarily tech mega-caps driving gains, whereas the wider market lagged. Microsoft saw its market capitalisation rise to $3.125 trillion, the highest ever company value. There still remains a degree of caution around regional banks, with New York Community Bancorp’s stock price continuing to suffer after posting a surprise quarterly loss. The yield on the 10-year Treasury ended higher at 4.18%.

Rate cuts were also weighing on sentiment in Europe, but indices mostly managed to eke out gains. A number of European Central Bank officials reiterated that they need more certainty of inflation returning to the 2% target before cutting rates. For the week, the pan-European STOXX 600 was up 0.2%, with Italy’s index amongst leaders while the UK FTSE lagged and saw a loss. Germany’s DAX ended the week little changed, but in a worrying sign for the economy, industrial production in the country declined by more than expected in December, notching its seventh consecutive monthly drop.

In Japan, the Nikkei 225 added 2% for the week and hit another fresh 34-year high, crossing the 37,000-mark. Gains were fuelled by a weaker yen, although there was a degree of profit taking. In addition, much of the advance was driven by a handful of stocks, such as Uniqlo parent Fast Retailing, which hit an all-time high on Thursday and SoftBank. The Japanese tech investment company not only got a boost after it posted its first profit in five quarters but also benefited after Arm, of which it owns around a 90% stake, saw its shares surge around 60% for the week.

Chinese stocks saw a holiday shortened week, but notched advances on stimulus announcements. The Shanghai Composite was up nearly 5% in its four days of trading, its best week since November 2022, with the market resuming on 19 February. Meanwhile, the Hang Seng was up 1.4%. Sentiment was propped up after the China Securities Regulatory Commission vowed to stabilise the market, while the removal of chair Yi Huiman was announced on Wednesday. Hopes of support offset concerns about ongoing deflation in the economy.

There was also plenty of central bank action in Latin America. Brazil cut its benchmark Selic rate by 50bps to 11.25% and also indicated that it would continue with such a cut for the following two meetings. Colombia cut its benchmark by 25bps to 12.75%, while Chile’s central bank was even more dovish and delivered a 100bps cut. Despite the cuts, for the week MSCI’s Latin America index ended 0.7% lower, and saw losses in January as investors scaled back US rate cut expectations and China economic woes which weighed on commodity prices.

Weekly macro highlights

UK house prices rise in January

Average property prices in the UK rose 1.3% month-on-month (MoM) in January according to the Halifax House Price Index. Property prices increased for the fourth consecutive month, with the cost of an average UK home now GBP 291,029, increasing GBP 3,785 compared to December 2023. House prices rose 2.5% year-on-year (YoY), marking the highest annual growth rate since January 2023. Property prices in Northern Ireland recorded the strongest growth within the UK, increasing 5.3% YoY, with an average house costing GBP 195,760. House prices in London remain the highest across the UK at an average of GBP 529,528, despite a 0.4% YoY decline in prices. Halifax noted that the recent fall in mortgage rates and reduction in inflationary pressures had improved sentiment in the UK housing market. However, Halifax noted that despite the recent pickup in housing activity, with interest rates at a 16-year high and an uncertain economic environment, further falls in house prices should not be ruled out.

Chinese inflation declines in January

Chinese headline CPI inflation fell 0.8% year-on-year (YoY) in January. The data came in steeper than market expectations of a 0.5% YoY fall, and the 0.3% YoY decline recorded in December. The annual headline inflation contraction in January was the fourth straight month of declines and the biggest since September 2009, led by a drop in food prices. Food prices fell 5.9% YoY, the lowest level on record, a result of a 17.0% YoY decline in pork prices. A 12.7% YoY decline in fresh vegetable prices and 9.1% YoY fall in fruit prices also contributed to the drag in food inflation, which has been in negative territory for seven months. Excluding food and fuel prices, core CPI inflation climbed 0.4% YoY in January. In month-on-month (MoM) terms, China’s headline CPI rose 0.3% (MoM) in January, compared to a 0.1% MoM increase in December. This data was below market expectations of a 0.4% gain MoM.

India’s central bank leaves rates unchanged in January

The Reserve Bank of India (RBI) left the key repo rate unchanged for the sixth consecutive time at 6.50%, following a 250 basis points rise between May 2022 and February 2023. Five out of the six-member monetary policy committee, consisting of three RBI and three external members, voted in favour of the decision, with the dissenter voting for a 25 basis point cut. The monetary policy committee noted that repetitive food price shocks were disrupting the pace of disinflation. India’s consumer price index remains above the RBI’s medium-term target of 4%, rising 5.69% year-on-year (YoY) in December 2023 compared to a 5.55% YoY increase in November 2023. RBI Governor Shaktikanta Das stated that the central bank maintains its projected inflation of 5.4% for this fiscal year, predicting annual inflation of 4.5% for the upcoming fiscal year 2024-2025 starting April. The RBI forecast growth in the Indian economy at 7% in 2024-2025.