Market Update – 25th January 2023.

26th January 2023

Investors continue to weigh on comments from Fed officials this week whilst keeping a close eye on corporate earnings. On Monday investors homed in on Fed Governor Christopher Wallace as his comments were supportive of smaller incremental interest increases to tackle inflation.

Flash PMI data was released this week for the UK, US and Eurozone. Central bank policymakers will be examining the PMI data closely to gain insight into the general direction of economic trends in the manufacturing and service sectors. A reading below the 50.0 threshold indicates contraction, while a reading greater than 50 suggests growth.

In the US PMI data was much better than expected, with both manufacturing and services PMI higher in January. Latest figures demonstrate that business activity is on an upward trajectory as there continues to be a slowdown in contraction. The Fed will ultimately be supportive of this when considering policy going forward.

Overall composite PMI, which includes manufacturing and services activity, rose to 46.6 in January up from 45.0 in the previous month. After economic data last week showed a decline in wholesale prices and retail sales, the latest PMI data bolsters the case for smaller interest rate rises from the Fed this year.

Whilst most Asian markets closed this week for Lunar New Year celebrations, China continues to build on its geopolitical relations as the country looks to revive its economy. Yesterday, at the summit of the Community of Latin American and Caribbean States, President Xi Jinping emphasised that China “always supports” the regional integration between Latin America and the Caribbean, and said China was ready to make progress with those countries calling for closer cooperation.

Over in Europe, markets were mixed this week as investors digested PMI data from the Eurozone in January. The composite PMI output index came in at 50.2 in January, up from 49.3 in December and beating expectations of 49.8. This is the first time the region has seen a PMI reading above 50 (which suggests growth) since June last year thanks to a fall in energy prices. Whilst consumers are likely to remain cautious, consumer confidence in the region has also improved this month on the expectation that lower energy prices will prevent the bloc from falling into a recession.

The UK’s flash PMI composite output index fell to 47.8 in January from 49.0 in December. However, manufacturing PMI rose to a six-month high and the survey indicated the strongest degree of business optimism in eight months, with falling inflationary pressures being the main reason for the improvement in outlook.

Still to come this week: markets await Thursday’s US gross domestic product (GDP) for Q4. Markets are expecting to see economic growth in the US of 2.6% over the period. We also have US durable goods orders, Irish consumer confidence and retail sales, and on Friday the University of Michigan consumer sentiment index.

Kate Mimnagh, Portfolio Economist