By Jan Faure
Global markets were mixed in January as conflicting economic data pointed to uncertainty over the timing of central banks’ monetary policy pivot this year. Geopolitical concerns also weighed on investor sentiment. Developed market equities posted modest gains (MSCI World +1.1%) while emerging markets declined (MSCI EM -4.7%), largely driven by continued weakness in Chinese equity markets.
China’s CSI 300 Index declined 6.3% in January to its lowest level in over five years. The Chinese economy has been severely constrained by policy decisions deemed to be market unfriendly, which led to a crippling property crisis, as well as sluggish demand in an economy that is perilously close to deflationary territory. Geopolitical tensions with the US and efforts by some Western nations to reduce dependence on China, or diversify their supply chains, further impeded growth. Despite attempts at policy support and other economic interventions, traction has proven elusive, contributing to the cautious and sceptical stance by foreign investors regarding China’s prospects.
Central bankers adopted a more measured stance in response to the latest set of slightly disappointing inflation data. Headline inflation readings in both the US and Europe were marginally above expectations, while UK inflation unexpectedly picked up for the first time in 10 months. This led central bankers to push back against optimistic predictions for interest rate cuts towards the end of the first quarter.
As anticipated, the US Federal Reserve held interest rates unchanged at the expected range of 5.25-5.50%. The Fed stressed the need to see further data confirming a cooling in inflation before easing interest rates. With the US jobs market and economy remaining resilient in the face of a much higher interest rate environment, there is little pressure on the Fed to prematurely tighten monetary policy until there is certainty that their inflation target will be met.
The momentum in US economic data continued to outpace expectations. Strong US retail sales in December indicated remarkable consumer resilience. Fourth-quarter GDP growth also surprised to the upside, defying earlier recession predictions, and culminating in a remarkably robust year. The preliminary estimate indicates that the US economy expanded an annualized 3.3% in Q4 2023, surpassing the forecasts of a 2% rise. Notably, for the full year, US GDP expanded 2.5% in 2023. These figures underscore that the Fed's interest-rate tightening measures have proven to be less severe than initially anticipated as a tight labour market continues to support consumer spending.
Table 1: Global Indicators – Local reporting currencies
