Market Update – 11th January 2023.

12th January 2023

Markets had a strong start to the year.

The UK’s FTSE 100 touched its highest level since 2018.

Asian markets have rallied as stocks rebound from their lows of last year and sentiment was boosted as China officially reopened its borders to international travellers over the weekend for the first time in nearly three years. Visitors will no longer need to quarantine when they arrive, however, they are required to provide a negative PCR test.  The MSCI China index rose 2.4% on Tuesday (11^th January).

Following the relaxation of strict zero-Covid restrictions, China has now entered negotiations with western medicine firms such as Pfizer and is in talks about anti-viral drug, Paxlovid. With a slowdown in growth data in recent years, the government’s primary focus is now on growing the economy as they continue to provide more financial support to households and companies to help them recover after the nation ended its zero-Covid policy.

As the Fed continues to be data-dependent in its fight against inflation, all eyes are on US CPI data due tomorrow (Thursday 12th January).

Markets will be keen to see whether inflation is continuing to ease, pricing in a 6.5% CPI reading for December after data in November came in at 7.1%, marking a slowdown in price rises for a fifth consecutive month.

After a slew of labour market data over the past week, we are also expecting that initial jobless claims and US mortgage application data (due later this week) should offer further insight into the health of the US economy. Fed Chair, Jerome Powell, spoke at the Riksbank symposium in Stockholm and reaffirmed the Fed have the necessary tools to adjust policy regardless of government and public pressures.

In Brazil, thousands of demonstrators stormed the government buildings as well as the presidential palace on Sunday (8^th January). The demonstrations came after Bolsonaro lost the presidential election to left-wing Lula da Silva in October and made unsubstantiated claims about the country’s voting systems. The protests were not surprising and we have seen other similar events when there are close election results, such as in the US in recent years. Whilst the ex-president has denied inciting the attacks, security forces have been quick to restore peace and order this week allowing the new president, Lula, to roll out his policy changes. This can be seen as noise in the market and we have seen markets rise since the 3^rd of January.

In terms of data, industrial production in Ireland jumped by 35.3% from the previous year in November, the increase was attributed to an increase in export from firms owned by multinationals. Eurozone unemployment remained at record low of 6.5% in November, unchanged from the previous month.

Still to come this week we have Chinese CPI and balance of trade data. UK monthly GDP, UK & Eurozone industrial production and the University of Michigan consumer sentiment.

Kate Mimnagh, Portfolio Economist