Quilter Cheviot|Weekly Comment

Stocks recover from slow start

Our weekly market overview from Quilter Cheviot

By Alan McIntosh, Chief Investment Strategist

Financial markets recovered last week after a soft start to the year, with the MSCI All Country World Index gaining 1.3% to end Friday pretty much where it began 2024. The best performing regions and sectors were at the forefront of the move, with US equities outperforming European peers and tech stocks among the biggest winners.

The latest US inflation data showed a slightly larger increase in the annual consumer price index (CPI) than was expected, coming in at 3.4%. Core prices, which strip out food and energy, continue to track higher than the headline figure, coming in at 3.9%. Overall, the CPI figures and the producer price data released the following day reaffirmed the feeling that although inflationary pressure have cooled significantly, they remain above central bank targets and don’t provide compelling evidence for central banks to substantially loosen monetary policy.  

Interest rate futures markets still strongly expect the Federal Reserve (Fed) to deliver its first reduction in the base rate at its March meeting, assigning a roughly 80%-90% probability of the move.

Earnings season was kicked off by the four largest US banks, with JP Morgan, Bank of America, Citigroup and Wells Fargo reporting a fairly solid set of fourth quarter results in general. Tech benchmarks recouped almost all of the prior week’s decline after a 3.1% gain. In Europe, The MSCI Europe ex UK index added 0.2%, leaving its year-to-date return at -0.4%. German and French equities outperformed while Italian bourses lagged.

In the UK, large-cap benchmarks fell 0.8% on the week, taking 2024 returns to -1.4%. Part of the weakness can be explained by an appreciation in the sterling to US dollar exchange rate, which ended the week at 1.28. 

Taiwan election

The first of what will be many keenly viewed elections in 2024 occurred in Taiwan, with the ruling Democratic Progressive party (DPP) winning the largest share of the vote. This means Lai Ching-te has been elected as president after the DPP won 40% of the vote. The DPP won 51 of the 113 parliamentary seats, as the Kuomintang, the largest opposition party, won 52, meaning that the eight seats won by the Taiwan people’s party could prove crucial in political decision making.

For financial markets the important thing is that Chinese warnings against electing Lai Ching-te were defied, with many fearful that a different outcome would increase the chances of military aggression from Beijing. China claims Taiwan as part of its territory and has refused to rule out the use of force to bring it back under its control. In a pacifying move following the election result, US president Joe Biden stated that the White House does not support independence.

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