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Markets lack impulses after strong start to year

Equity markets in the US were down slightly midweek and European stocks were mixed as traders searched for impulses in a week of slow economic data. Asian markets were also mixed on Thursday. The euphoria to start the year that led to fresh all-time highs in many of the world’s largest equity markets seems to have dissipated. On Thursday, a series of inflation data out of the US and Europe could shake things up by providing clues about the timing of major central banks’ potential interest rate cuts.

Shane Strowmatt, LGT
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5 minutes
Global stocks drop
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Investors were given some macroeconomic data to sift through midweek, but nothing with enough weight to move markets significantly. Revised data released on Wednesday showed that the US economy grew slower than initially thought in the fourth quarter, while the Federal Reserve’s (Fed) preferred gauge of inflation – the Personal Consumer Expenditures Price Index (PCE) – was revised higher. Gross domestic product (GDP) increased by 3.2% year on year in the final quarter of 2023, slower than the initial release, which stood at 3.3%. While economic growth was strong, inflation has also proven difficult to rein in. PCE rose at an annual rate of 1.8% in the fourth quarter and Core PCE – which excludes volatile food and energy prices – increased by 2.1%. Both of those numbers were 0.1 percentage points higher than the initial estimates. January’s PCE release is due later Thursday.

Strong economic growth combined with persistent inflation gives the Fed a solid narrative to push back interest rate cuts until later in the year. Markets have already essentially ruled out the possibility of an interest rate cut at the Fed’s next meeting in March and even a cut in May is considered unlikely, according to the CME FedWatch Tool. A strong PCE reading for January on Thursday could push back expectations for a first Fed rate cut even further, putting pressure on stock markets, which have come down slightly after setting multiple new highs in many markets in the last weeks.

US stock indices continued to slowly pull back from all-time highs made last as traders waited for inflation data on Thursday. The Dow Jones Industrial lost 0.1% on Wednesday and the S&P 500 was down 0.2%. The Nasdaq-100 closed down 0.5%.

In Europe, euro-area economic confidence dropped to its lowest level in three months. The European Commission’s sentiment indicator came in at 95.4, dragged down by services. The euro-area economy just managed to avoid recession at the end of 2023, with GDP in the area flat in the fourth quarter of last year. Markets expect the European Central Bank to begin cutting interest rates either at its April or June meeting in an effort to support the weak economy. The Euro Stoxx 50 closed marginally lower on Wednesday.

Investors in the Asia-Pacific region were also forced to wait another day for major macroeconomic data. In addition to US PCE data, traders are eagerly awaiting China’s Manufacturing Purchasing Managers’ Index, due out on Friday. Hong Kong’s Hang Seng Index was trading slightly lower on Thursday, while the Shanghai Composite was up 0.9%. Japan’s factory output fell at the fastest pace in almost four years in January, according to data released on Thursday. Industrial output fell 7.5% when compared to December, dragged down by the automobile sector. The data had little effects on markets with the Nikkei 225 closing marginally higher on Thursday. South Korea’s Kospi ended the day down 0.4% and Australia’s S&P/ASX 200 gained 0.5%.

Corporate news in focus: Quarterly figures from Anheuser-Busch InBev, Adecco, NN Group, Saint-Gobain, Veolia Environnement.

Economic data in focus: German retail sales, French Consumer Price Index, Swiss gross domestic product, German unemployment rate, German Consumer Price Index, Canadian gross domestic product, US personal consumption expenditures, US weekly initial jobless claims, US existing home sales.


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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