The Week Ahead
29 January

The Week Ahead – 29 January

Investment Market Update: 29 January

Financial markets were generally stronger over the week with equities leading the way. Emerging markets were the strongest sector, assisted by further stimulus measures proposed by the Chinese government and PBOC, which will look to cut the Reserve Requirement Ratio (RRR) from February 5th. The release of the PMI data for Jan is likely to show little movement in the Chinese economy, with ongoing contraction in the manufacturing (f’cst 49.3 pts) sector offset by a flat services sector (f’cst 50.6 pts). The Chinese economy has lagged that of the US through 2023, which grew at 3.3% 4q23 defying analyst projections of a slowdown in the US. While 2024 is likely to see slower growth as the impact of the Fed’s rate cycle works through the economy, the ongoing strength of the US economy has been one of the key reasons for the overall upward trajectory in equity markets. Over the week, the release of PMI data from both the US and Europe continued to point to a moderating inflationary outlook, while the ECB also kept cash rates unchanged at 4.50%. Given the recent comments from the ECB, we expect no change in policy over the 1h24, with rates cuts beginning over the northern hemisphere summer. In Aust, business confidence continued to move lower (-1.0 ppt) and reflects the somewhat weaker employment data from Dec. This week the release the Dec CPI figure (31st) will be an impt gauge as to the next move by the RBA along with Dec retail sales (f’cst -1.8%, -3.8% pcp). With a f’cst q/q of 0.8% (-0.4% pcp) and an y/y 4.3% (-1.1% pcp), its likely that the RBA will remain on hold at its next meeting (6th Feb), although the y/y level remains well above the RBA’s target (2-3%) level. Both the US Fed and BoE meet this week and we continue to expect no change in rate policy settings from either central bank. Akin to the ECB we expect that the Fed will remain on hold for an extended period with most rate cuts coming in the 2h24. European CPI (f’cst 3.2%, -0.2% pcp) is also set for release along with Un data (f’cst 6.4%, no change pcp) for the region. Overall, the ongoing decline in inflationary pressures should provide a positive backdrop for European markets, while in Japan, the release of industrial production data and retail sales will continue to point to a solid economic outlook.

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