The IMF has raised its global economic growth forecast. Australia has seen a decline in inflationary pressures :: InvestMacro

By JustMarkets

The Dow Jones Index (US30) was up by 0.36% as of Tuesday’s stock market close. The S&P 500 Index (US500) decreased by 0.06% yesterday. The NASDAQ Technology Index (US100) closed negative by 0.76%.

The US economic reports released on Tuesday showed a growing US economy, bolstering optimism that the Federal Reserve will be able to provide a soft landing. The January Conference Board US Consumer Confidence Index rose by 6.8 points to a 2-year high of 114.8, matching expectations. In addition, the December JOLTS Job Openings Index unexpectedly rose by 101,000 to 9.026 million, indicating a stronger labor market than expectations of a decline to 8.750 million.

The US Federal Reserve will hold its monetary policy meeting in the US today. The Central Bank intends to keep interest rates unchanged, but the focus will be on any hints about the timing and speed of rate cuts this year. Markets will react to any change in the tone of the FOMC statement. A more dovish tone of the statement will put pressure on government bonds and the US dollar, giving confidence to indices and gold. On the other hand, a cautious tone due to persistent service inflation and data dependence may provoke investors to be overly cautious in the form of a sell-off in equities, especially as indices are at all-time highs.

The US Federal Reserve will hold its monetary policy meeting in the US today. The Central Bank intends to keep interest rates unchanged, but the focus will be on any hints about the timing and speed of rate cuts this year. Markets will react to any change in the tone of the FOMC statement. A more dovish tone of the statement will put pressure on government bonds and the US dollar, giving confidence to indices and gold. On the other hand, a cautious tone due to persistent service inflation and data dependence may provoke investors to be overly cautious in the form of a sell-off in equities, especially as indices are at all-time highs.

General Motors shares rose by 7.8% after the company beat earnings and revenue forecasts and provided a better-than-expected earnings outlook for 2023. Meanwhile, Nvidia shares hit an all-time high of 627.74. Alphabet (GOOG) shares fell by 6% on the report. Alphabet disappointed Wall Street as holiday ad sales came in below expectations, but the company said its spending on servers to power artificial intelligence will increase this year. Microsoft (MSFT) reported second-quarter results Tuesday that beat analysts’ forecasts, as rising demand for artificial intelligence boosted the tech giant’s cloud computing business. But the company’s shares fell by nearly 2% on the report.

The IMF raised its global economic growth forecast for 2024 to 3.1% from 2.9% in October and left its 2025 forecast unchanged at 3.2% amid better-than-expected resilience in the US and several large emerging market and developing economies, as well as fiscal support in China. Growth forecasts for 2024 were revised upward for the US (2.1% vs. 1.5%), China (4.6% vs. 4.2%) and India (6.5% vs. 6.3%), but the institution expects lower growth in the Eurozone (0.9% vs. 1.2%) and Japan (0.9% vs. 1%).

Equity markets in Europe were mostly rising yesterday. Germany’s DAX (DE40) rose by 0.18%, France’s CAC 40 (FR 40) gained 0.48%, Spain’s IBEX 35 (ES35) jumped by 1.51% on Tuesday, and the UK’s FTSE 100 (UK100) closed positive by 0.44%.

Frankfurt’s DAX (DE40) index rose above the 17,000-point mark for the first time but then eased back to close at 16,980 points. Investors were analyzing the latest GDP data and its potential impact on the European Central Bank’s monetary policy outlook. The German economy contracted by 0.3% in the fourth quarter after two consecutive periods of stagnation, driven by persistent inflation, rising energy prices, and weaker external demand. On an annualized basis, the German economy contracted by 0.2% in the fourth quarter, entering a technical recession for the first time since 2020-21.

The euro area economy unexpectedly stalled in the last three months of 2023 after contracting by 0.1% in the previous period. The common bloc avoided recession at the end of 2023 thanks to better-than-expected growth in Spain (+0.6%) and Italy (+0.2%), while the French economy stalled and the largest Germany contracted by 0.3%. Other small economies, including Portugal (+0.8%), Belgium (+0.4%), Latvia (+0.4%), and Austria (+0.2%), also contributed positively to GDP. On the other hand, declines were seen in Ireland (-0.7%) and Lithuania (-0.3%). The Eurozone’s outlook for 2024 remains challenging amid high borrowing costs and prices, weaker domestic and external demand, and a weakening manufacturing sector, especially in Germany.

Asian markets traded mixed yesterday. Japan’s Nikkei 225 (JP225) was up by 0.11%, China’s FTSE China A50 (CHA50) was down by 1.74%, Hong Kong’s Hang Seng (HK50) lost 2.32% on the day, and Australia’s ASX 200 (AU200) was positive by 0.29% on Tuesday.

Australian inflation fell to 4.1% y/y in Q4 2023 from 5.4% in Q3, indicating the lowest level since Q4 2021, compared to market expectations of 4.3%. The Australian dollar depreciated to $0.657, hitting its lowest level in a week, as weak inflation data spurred bets the country will cut interest rates soon. The Reserve Bank of Australia (RBA) is expected to leave rates unchanged at next week’s meeting, while there is about a two-thirds chance of a rate cut in June, and a rate cut in August is already fully priced in.

China’s official manufacturing PMI came in at 49.2 in January 2024, matching forecasts and up from December’s 6-month low of 49.0. China’s composite PMI rose to 50.9 in January 2024 from 50.9 in the previous month. This is the highest reading since September last year, with the services sector rising the most in four months, while the decline in factory activity continued for the fourth consecutive month. The latest data suggests that the momentum of the Chinese economy remains weak amid numerous piecemeal support measures targeting specific sectors. Meanwhile, the central bank has taken a raft of measures in recent months, including large cash injections and an unexpected reduction in the reserve requirement ratio for commercial banks, which will take effect in early February.

S&P 500 (US500) 4,924.97 −2.96 (−0.06%)

Dow Jones (US30) 38,467.31 +133.86 (+0.35%)

DAX (DE40)  16,972.34 +30.63 (+0.18%)

FTSE 100 (UK100) 7,666.31 +33.57 (+0.44%)

USD Index  103.39 −0.22 (−0.21%)

News feed for 2024.01.31:

• – Japan Retail Sales (m/m) at  01:50  (GMT+2);
• – Australia Consumer Price Index (m/m) at 02:30 (GMT+2);
• – China Manufacturing PMI (m/m) at 03:30 (GMT+2);
• – China Non-Manufacturing PMI (m/m) at 03:30 (GMT+2);
• – German Retail Sales at 09:00 (GMT+2);
• – German Unemployment Rate (m/m) at 10:55 (GMT+2);
• – German Consumer Price Index (m/m) at 15:00 (GMT+2);
• – US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+2);
• – Canada GDP (m/m) at 15:30 (GMT+2);
• – US Chicago PMI (m/m) at 16:45 (GMT+2);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+2);
• – US FOMC Statement at 21:00 (GMT+2);
• – US Fed Interest Rate Decision at 21:00 (GMT+2);
• – US FOMC Press Conference at 21:30 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.