The euro area just managed to avoid slipping into recession at the end of last year by stagnating in the fourth quarter. The lack of contraction was enough for stock markets in Europe to rally. In the US, good news was bad as strong labour market and consumer data kindled up the narrative that rates may not be cut until later in the year. US stocks were mixed with tech stocks down while Asian stocks were also mixed on Wednesday.
Gross domestic product (GDP) in the euro area stagnated in the last three months of 2023 after falling 0.1% in the third quarter. Italy (+0.2% compared with the previous quarter) and Spain (+0.6%) kept the bloc out of negative territory. The eurozone’s second-largest economy, France, saw no change in the quarter, while Germany, the bloc’s largest economy, dragged down growth with a contraction of -0.3% in the fourth quarter. When compared with the same quarter of the previous year, the euro area grew just 0.1%, according to the preliminary estimate data. The Euro Stoxx 50 gained 0.5% on Tuesday.
Macroeconomic data out of Switzerland was exceptionally bright for Europe on Tuesday with the KOF Economic Barometer rising for a third month in a row in January. The economic indicator rose to 101.5 points, which is above its long-term average. The only outlooks to worsen in the indicator were for financial and insurance activities, while the outlook for consumer demand remained essentially unchanged. Switzerland’s SMI closed up 0.1% on Tuesday.
On another positive macroeconomic note, the International Monetary Fund increased its forecast for global economic growth due to higher-than-expected growth in both the US and China. It now expects global growth of 3.1% in 2024, up from 2.9% from its previous estimate.
Data out of the US continued to paint a picture of a resilient labour market in the world’s largest economy. Available jobs in the US economy rose in December to more than 9 million on a seasonally adjusted basis, according to the Bureau of Labor Statistics’s Job Openings and Labor Turnover Survey. That number is a three-month high and beat economists’ expectations. A strong labour market fuels the US consumer, the main driver of the US economy, but that also worries the Federal Reserve (Fed), which needs consumer spending to cool in order for inflation to come down. In another blow to the Fed on Tuesday, the Conference Board Consumer Confidence Index came in at its highest level in more than two years in January, rising to 114.8 from 108 in December. That could signal more spending to come.
Market participants interpreted the strong labour market data as a sign the Fed may have to push back interest rate cuts until later in the year, which pressured US stocks. The Dow Jones Industrial finished the session up 0.4% while the S&P 500 fell 0.1%. The Nasdaq-100 lost 0.7%. Big Tech stocks seem to be priced for perfection with even companies that beat analyst estimates suffering after reporting quarterly earnings. Shares of software companies and chip manufacturers remained under pressure on Wednesday with both Alphabet and AMD falling sharply in after-hour trading. Microsoft stock was also trading down slightly, despite revenue and earnings per share beating consensus. Microsoft stock is up 70% over the last 12 months and Alphabet has gained more than 50%.
In the Asia-Pacific region, stock markets were mixed midweek with Chinese stocks again leading losses. Manufacturing activity in the world’s second-largest economy contracted for the fourth month in a row in January. The Manufacturing Purchasing Managers’ Index for China ticked up to 49.2 from 49.0 in December but remained below the 50-mark, which separates expansion from contraction. Hong Kong's Hang Seng Index was trading down 1.6%, while the Shanghai Composite lost 1.3%. On the other end of the spectrum was Australia’s S&P/ASX 200, which reached a new all-time high on Wednesday, gaining 1.1%. Inflation in Australia came in at 4.1% in the fourth quarter, which was lower than market expectations. In Tokyo, the Nikkei 225 increased 0.6% and South Korea’s Kospi fell 0.1%. The South Korean index was dragged down by shares of Samsung, which fell more than 2% after the company reported falling operating profit in the fourth quarter.
Corporate news in focus: Quarterly figures from Banco Santander, Boeing, Mastercard, Novartis, Novo Nordisk, Phillips 66, Qualcomm, Raiffeisen.
Economic data in focus: German retail sales, Swiss retail sales, German unemployment rate, ZEW Economic Sentiment Index for Switzerland, German Consumer Price Index, US ADP National Employment Report, Canadian Gross Domestic Product, US Federal Reserve interest rate decision.
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.