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US retail sales drop to start the year

Retail sales in the US came in below expectations in January, which market participants interpreted as a reason for the Federal Reserve (Fed) to go ahead with interest rate cuts starting in June. Equity markets reacted positively with the major indices in the US, Europe and Asia all making gains.

Shane Strowmatt, LGT
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US retail sales fell by 0.8% in January, the biggest drop in almost a year. Declining sales were witnessed across many industries, signalling a broad decline in consumer spending. Consumption represents a large piece of the US economy and strong spending drives inflation, making consumption data relevant for monetary policy decisions. However, another measure of consumers’ ability to make future purchases showed a sign of strength on Thursday: weekly initial jobless claims fell by 8,000 to 212,000 last week.

In New York, stock indices made gains on Thursday but remained just bellowed recently set all-time highs. The Dow Jones Industrial closed 0.9% higher and the S&P 500 increased 0.6%. The Nasdaq-100 was up 0.2%.

In individual stocks, companies associated with Nvidia made gains after the US chipmaker revealed details about its holdings of other firms, setting off speculation about how the company plans to shape the development of artificial intelligence. Shares of Arm Holdings, Nvidia’s largest investment in the space, gained 5.8%. Shares of Arm, which Nvidia backed out of taking over in 2022 due to a lack of regulatory support, are trading up more than 60% over the last week after the stock skyrocketed due to a strong sales outlook. Shares of Recursion Pharmaceuticals (+13.8%) and Soundhound AI (+66.7%) also profited from the disclosure of Nvidia’s holdings. Nvidia’s shares, however, lost 1.7% on Thursday.

In the Asia-Pacific region, stock markets continued with the positive sentiment from Wall Street. In Tokyo, the Nikkei 225 gained 0.9% on Friday, closing within reach of its all-time high set in 1989. In South Korea, the Kospi increased 1.3%. Australia’s S&P/ASX 200 closed 0.7% higher. Hong Kong's Hang Seng Index shot up 2.4%, while markets in mainland China remained closed for the week for the Lunar New Year celebrations.

The UK economy contracted in the last quarter of 2023, sending Britain into a recession in the second half of the year. UK gross domestic product (GDP) contracted by 0.3% in the fourth quarter after shrinking 0.1% in the previous quarter. The weak economic data provide the Bank of England (BoE) with an argument to cut interest rates, despite inflation that is well beyond the central bank’s target. Markets are anticipating three rate cuts from the BoE this year, starting in August.

Corporate news in focus: Quarterly figures from Sika, Swiss Re.

Economic data in focus: UK retail sales, Swiss industrial production, French Harmonised Index of Consumer Prices, US Producer Price Index and monthly building permits, University of Michigan Consumer Sentiment Index.

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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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