The European Central Bank (ECB) extended its interest rate pause on Thursday and signalled cuts aren’t a topic of discussion yet among members of the Governing Council, which sets the central bank’s monetary policy. European and US equities ended the day higher, supported by another strong gross domestic product (GDP) release out of the US for the final quarter of 2023. In Asia, stocks were mixed at the end of the week.
The ECB kept its deposit rate unchanged at 4.0% while the central bank continues to watch how recent interest rate hikes affect the economy. ECB President Christine Lagarde said rate cuts aren’t yet a topic at the ECB’s Governing Council yet but could be on the cards in the summer. Lagarde noted that the weakness of the euro-area economy, which likely stagnated in the fourth quarter, is lowering demand and therefore helping to push down the rate of prices increases. Inflation in the eurozone came down markedly last year but increased slightly in December to 2.9% while core inflation - which strips out volatile energy and food prices - continued to fall to 3.4%. Those numbers are still above the ECB’s 2% inflation target, but the most recent inflation data suggest the target could be reached soon. Consequently, most analysts expect the ECB to begin cutting rates later this year, likely at its April or June meetings. The Euro Stoxx 50 ended Thursday’s session 0.4% higher.
In other monetary policy news, the central bank of Norway also left rates unchanged while Turkey’s central bank raised rates in line with expectations by 250 basis points. The euro slumped versus other major currencies while the Norwegian Krone strengthened following the central bank decisions. The lira was little changed versus the US dollar.
In New York, stock indices continued their march to new highs on Thursday, supported by solid fourth-quarter economic growth. Data released Thursday showed the world’s largest economy expanded by 3.3% during the fourth quarter when compared to the same period a year earlier. GDP grew 2.5% over all of 2023, supported by strong spending growth - the driver of the US economy. For much of 2023, economists predicted a recession in the US, but economic data remained stronger than expected through the end of the year. Stock markets celebrated the GDP release. The Dow Jones Industrial closed Thursday up 0.6% and the S&P 500 gained 0.5%. The Nasdaq-100 finished the session 0.1% higher.
In individual stocks, Tesla shares plummeted about 12% on Thursday after the maker of electronic vehicles warned that sales are likely to slow while presenting its quarterly results a day earlier. Intel reported its quarterly earnings on Thursday, which were ahead of analyst estimates. Fourth-quarter revenue was up 9.7% on the year. Intel shares lost more than 10% in after-hour trading, mostly due to concerns about the company’s outlook. Intel’s earnings report comes after chip supplier ASML said orders more than tripled in the fourth quarter when compared to the previous quarter, a sign that the chip industry is booming, particularly on AI-related demand.
In the Asia-Pacific region, stock markets were mixed on Friday with Hong Kong's Hang Seng Index leading losses at -1.6%. Stocks listed in Hong-Kong related to electric vehicles were dragging the index down after Tesla shares slumped in the US. In mainland China, the Shanghai Composite was performing better with a marginal gain. Tokyo’s Nikkei 225 was the other major Asian index deep in the red, closing down 1.4% after the release of Consumer Price Index (CPI) data for the Japanese capital city came in at the lowest value in nearly 2 years. Core inflation in Tokyo - which excludes volatile food and energy prices - was 1.6% when compared to the same month last year. The Bank of Japan (BOJ) signalled this week that it may be coming to the end of its ultra-loose monetary policy, but rapidly decelerating inflation makes the tightening move less urgent. In South Korea, the Kospi gained 0.3% and Australia’s S&P/ASX 200 finished the week’s last session up 0.5%.
Corporate news in focus: Quarterly figures from Lonza, Sartorius, SGS.
Economic data in focus: Germany’s GfK Consumer Climate, US personal consumption expenditures.
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Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.