Financial Markets Overview - January, 2024
Market Analysis
Stellar Capital STELLAR 7 February, 2024

Financial Markets Overview - January, 2024

In January, the performance of stock markets varied, with shares in developed markets increasing in value, while those in emerging markets declined. Central banks signaled that interest rate reductions might not happen as soon as anticipated, leading to a rise in government bond yields (indicating falling prices). Concurrently, oil prices increased due to conflicts in the Middle East and disruptions in shipping.

In the US, stock markets saw growth, fuelled by strong corporate earnings and indicators of a potential gentle economic downturn. However, the Federal Reserve (Fed) tempered hopes for near-term rate cuts by the end of the month. The communication services and information technology sectors outperformed, driven by solid earnings and optimistic future projections from some major companies, while the real estate and materials sectors lagged behind.

US economic data revealed a 3.3% annualized GDP growth in the fourth quarter of 2023, with a yearly growth of 3.1%. Inflation slightly increased in December, and the labor market remained strong. The Fed maintained interest rates at 5.25-5.5% during its end-of-month meeting, with indications from Fed Chair Jerome Powell suggesting that while interest rates have peaked, cuts in the near future are unlikely.

Eurozone stocks also saw an increase, particularly in the information technology sector. Expectations for early interest rate cuts by the European Central Bank (ECB) diminished following a rise in inflation in December. However, the ECB maintained its rates, with President Christine Lagarde noting the ongoing disinflation process.

The UK stock market experienced a decline due to delayed expectations for interest rate cuts, following an unexpected rise in inflation. The Chancellor hinted at significant tax reductions in the upcoming budget. Technology, consumer discretionary, staples, and healthcare sectors outperformed.

Japanese equities had a strong start to 2024, with significant gains in the TOPIX and Nikkei 225 indices, driven by foreign investor expectations for structural changes. Despite two early disasters, the market reached new highs, helped by a weaker yen which benefits exporters.

Asia excluding Japan faced challenges, with investor caution due to concerns over China's economic slowdown and less optimistic expectations for rapid interest rate cuts. India and the Philippines saw modest gains, while other markets struggled.

Emerging markets underperformed compared to developed markets, with concerns over US interest rate policies and economic strength affecting sentiment. China's economic challenges continued to weigh on its market performance.

Global government bond markets reversed some of their previous gains as yields rose, reflecting falling prices. The US economy showed resilience, contrasting with slower growth in the eurozone. Inflation pressures eased, but central banks indicated that immediate rate cuts were unlikely, leading to a stronger dollar, especially against the Japanese yen.

The S&P GSCI Index increased due to gains in livestock and energy, despite weaker performance in agriculture, industrial metals, and precious metals. Oil prices were influenced by Middle Eastern conflicts and disruptions in the Suez Canal.