WHAT YOU NEED TO KNOW
- The sustained fall in US inflation alongside the reopening of China’s economy and a warmer-than-normal European winter brought hopes of a more optimistic start to 2023 than initially feared by markets.
- The falling US inflation data was welcomed by equity and government bond indices, which closed the week higher across the board, while the US dollar softened.
- In portfolios, we currently have a higher weighting towards high-quality bonds as we believe interest rates will peak in 2023. On the equity side, we increased exposure to quality US and attractively valued emerging market equities over those in the euro area. We also expect a softer USD vs the EUR and GBP.
MARKETS AT A GLANCE
WHAT WE ARE WATCHING
- US retail sales and industrial production (Wednesday), as well as US housing market data (Wednesday and Thursday), could show signs of pressure which may lead to the Fed concluding its rate hiking cycle sooner than expected.
- In Europe, the German ZEW economic sentiment and current conditions surveys (Tuesday) are expected to recover considering the improved energy market outlook.
- UK headline inflation (Wednesday) is likely to remain stable, curbing UK consumer confidence (Friday).
- In Asia, China GDP Q4 (Tuesday) is projected to have fallen on a quarterly basis. In addition, industrial output and retail sales in December (Tuesday) are expected to weaken. Investors will be keen to see any news from Chinese officials on loan prime rates (Friday).
- The Bank of Japan is set to hold its policy rate at -0.1% (Wednesday), however, headline inflation in Japan (Thursday) could rise to 4% year-on-year.