Week ending 29th December 2023.

With traders returning from an extended Christmas break and only a few days remaining in the year, markets extended their “Santa Rally” during the final trading days of 2023. Global markets surged since mid-December following major central bank pauses in monetary tightening with the Federal Reserve hinting at potential rate cuts in 2024, boosting investor sentiment.

It was a quiet week for markets, with a scarcity of economic data for investors to digest. The S&P 500 hovered around its all-time high last week. Initial jobless claims rose by 12,000 to 218,000 last week, surpassing consensus expectations of 210,000. Despite the increase, first-time applications for unemployment benefits remained near historical lows, providing further evidence that companies are hesitant to reduce headcounts amid steady demand. Treasury yields also continued to decline, reflecting hopes that inflation has cooled enough for the Federal Reserve to consider rate cuts.

Japan’s stock markets closed higher, supported by expectations of the Bank of Japan’s (BoJ) sustained ultralow interest rate policy. While the BoJ contemplated exiting the stimulus program, board members stressed a lack of urgency for a shift, highlighting flexibility in awaiting wage data. Governor Kazuo Ueda suggested a potential policy adjustment but underscored the importance of wage talks and achieving their 2% inflation target.

Chinese stocks experienced a notable uptick as the government revealed new approvals for online games and provided assurances regarding potential restrictions in the gaming sector. China’s November industrial profits marked double-digit gains, signalling manufacturing improvement, despite soft demand impacting business growth expectations. While the 29.5% profit rise in November was positive, industrial earnings for the first 11 months of 2023 exhibited a year-on-year contraction of 4.4%, showing improvement from October’s 7.8% drop. However, it was a positive week for Hong Kong’s Hang Seng Index, advancing by 4.3%, driven by substantial buying of technology and property shares.

Looking ahead, next week’s data includes PMI data from China, the U.S., the UK, and Ireland. Toward the end of the week, inflation data from the Eurozone, including Ireland inflation data, and U.S. labour market data, including non-farm payrolls, participation rate, and unemployment rate, are anticipated. On Wednesday, investors will be scrutinizing the Fed minutes from their last policy meeting in December for further clues about the future path of monetary policy.

Kate Mimnagh, Portfolio Economist

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