The People’s Bank of China (PBoC) left its key interest rate unchanged while the central bank continues watching the effects of stimulus measures implemented last year on the economy. Further central bank decisions are due this week from the Bank of Japan (BoJ) on Tuesday and European Central Bank (ECB) on Thursday. The general consensus is that central banks will hold off on interest rate cuts while they carefully observe how quickly key macroeconomic data cool down going into the spring. Equity markets in the Asia-Pacific were mixed to start the week with Chinese stocks seeing the biggest losses. Last week, stock markets in the US rallied into the weekend, while European markets slid slightly.
The PBoC left its key interest rate for one-year loans – the benchmark for most household and corporate loans in China – unchanged at 3.45%. The reference interest rate for five-year loans – the benchmark for mortgages – also remained at 4.2%. Chinese markets were under pressure for most of 2023 after the highly anticipated reopening of the world’s second-largest economy disappointed investors consistently throughout the year. Instead of a vibrant reopening, the economy has been plagued by problems in the real estate sector, as well as weak consumer demand and local government debt issues, despite Beijing responding with stimulus measures. While no changes to the PBoC's rates were largely expected on Monday, markets responded negatively to the central bank's lack of further stimulus announcements with Hong Kong's Hang Seng Index falling 3.1% the Shanghai Composite dropping 2.7%.
Beyond China in the Asia-Pacific region, stock markets were mixed to start the week. In Tokyo, the Nikkei 225 shot up 1.7% ahead of a central bank policy announcement due on Tuesday. The BoJ is widely expected to make no major adjustments to its ultra-loose monetary policy. In South Korea, the Kospi lost 0.3% and Australia's S&P/ASX 200 gained 0.8%.
In New York, stock indices shot up to finish Friday's session, propped up by solid consumer confidence data. The University of Michigan Consumer Sentiment Index came in at 78.8 for January, the highest level since July 2021. The strong consumer confidence corroborates US retail sales data from last month that showed consumer spending up 0.6% in December. A strong US consumer was largely responsible for the relative strength of the US economy last year and the recent data suggest consumption may remain high into the new year, pushing back a possible recession in the US further into 2024. Markets welcomed the positive macroeconomic data with the Dow Jones Industrial gaining 1.1% and the S&P 500 finishing Friday 1.2% higher. The Nasdaq-100 was up almost 2%.
In Europe, there were signs of economic cooling in macroeconomic data from multiple countries at the end of last week. UK retail sales dropped the most in almost three years in December, falling 3.2% during the month when compared with the previous month. Europe's largest economy, Germany, posted an 8.6% drop in consumer prices in December when compared with the same month of the previous year. The Swiss Producer and Import Price Index fell by 0.6% on the month in December. The average annual inflation rate for producer and import prices in Switzerland was a modest 0.2% for all of 2023. Higher electricity and gas prices mostly accounted for the price increases, while prices for petroleum products and metal products fell during the year. On Friday, the Euro Stoxx 50 fell 0.1%, Germany's DAX lost 0.1% and Switzerland's SMI finished the session 0.3% lower.
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Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.