Stock markets around the world have enjoyed a positive week thanks to improved economic data and solid company earnings reports.
The news that the US economy had grown by an annual rate of almost 3% in the final three months of 2022 was welcomed as an indication that growth may not slow as much as previously feared this year. In recent months, investors have at times reacted negatively to similar signs of economic strength – largely due to worries that central banks may respond by raising interest rates more quickly to prevent overheating. This week, however, markets have apparently decided to take the upbeat GDP figure at face value. Whether this optimism can survive another rate hike from the Federal Reserve when it meets next week remains to be seen.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 26 January 1.7% up for the week so far, with the S&P 500 advancing 2.2%. Last quarter’s economic growth was based on resilience in the jobs market and a decline in the inflation rate, both of which underpinned higher levels of household spending. Earnings season has been largely positive to date, with around two-thirds of the S&P-listed companies to have reported so far beating analysts’ estimates. However, there have been some potentially worrying signs among larger technology businesses that the outlook may be getting gloomier.
In the UK, the FTSE 100 closed on Thursday 0.1% down for the week to give up some of the strong gains it has made so far this month. With inflation in Britain running at a consistently higher level than in the US, company trading reports have on the whole been more downbeat. Latest figures showed that business activity in the UK fell at its sharpest rate in two years in January, with high prices and widespread industrial action combining to restrict output. Meanwhile, UK government borrowing in December reached a record high thanks to rising interest costs and the energy subsidy programme.
In Frankfurt, the DAX index ended Thursday’s session up 0.7% for the week, while France’s CAC 40 gained 1.4%. Data suggested that eurozone output had risen slightly over the month so far, while major companies in the technology and financial sectors published impressive trading statements. Investors now await February’s monetary policy decision from the European Central Bank.
In Asia, the Hang Seng index in Hong Kong made up for lost time on Thursday after its new year holiday closure, rising 2.4% in the wake of gains on global markets. Exchanges in mainland China will resume business next week. Japan’s Nikkei 225 index of leading shares, meanwhile, continued its recent surge to close trading on Thursday 3% higher for the week. Investors have been relieved by the Bank of Japan’s continuation of its relaxed approach to monetary policy, while the market has also been boosted by solid earnings reports from motor manufacturers.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 26 January 2023.