Global Equities Tackle Growth Concerns After Inflation

After an optimistic start to the year driven by better inflation numbers in the US and other major economies, past fortnight investor sentiments seemed more mixed due to rising growth concerns 

"Inflation in the UK decreased year-over-year in December 2022 for a second consecutive month. Lower gas prices were a major factor. In November, the consumer price index (CPI) was 10.7 per cent; according to the Office for National Statistics, it decreased to 10.5 per cent in December."  [EasyDNNnews:PaidContentStart]

After a barrage of weaker-than-expected economic statistics, the markets appeared to take a significant downward swing last week. The US retail sales data for December dropped by 1.1 per cent monthly, less than the 0.8 per cent loss that was anticipated, and reached the lowest monthly reading since 2022. This slowdown throughout the holiday shopping season signalled a general decline in demand, even for expensive items like auto and furniture sales. This was possibly the first indication that American consumers are beginning to cut back as a result of both high inflation and impending economic deterioration. Investors are now keeping a close eye on this trend to see if it persists until early 2023. 

As recession fears began to weigh on sentiment, the major indices closed with a mixed performance. The tech-heavy Nasdaq Composite saw small gains, but the narrowly focused Dow Jones Industrial Average underperformed and gave back some of its significant gains in the first two weeks of the year. Similarly, as the likelihood of lower interest rates raised the implicit value of future earnings, the easing of inflation fears contributed to growth stock outperformance. 

European stocks declined after ECB policymakers indicated they will continue to raise interest rates aggressively, reigniting concerns about a protracted economic slump. The pan- European STOXX Europe 600 Index closed the week slightly lower in local currency terms. In general, major stock indices were weaker. The DAX Index in Germany dropped 0.35 per cent, the CAC 40 Index in France declined 0.39 per cent, and the FTSE MIB Index in Italy was nearly unchanged. The FTSE 100 Index for the UK dropped by 0.94 per cent. 

Inflation in the UK decreased year-over-year in December 2022 for a second consecutive month. Lower gas prices were a major factor. In November, the consumer price index (CPI) was 10.7 per cent; according to the Office for National Statistics, it decreased to 10.5 per cent in December. 

The Nikkei Index increased by 1.66 per cent during the past fortnight, while the more inclusive TOPIX Index increased by 1.25 per cent. The likelihood that China's reopening would stimulate the global economy and expectations that the main central banks would moderate the pace of their rate increases in the face of some evidence of easing inflationary pressures helped to support sentiment. 

Following news of stronger-than-anticipated economic growth, Chinese stocks rose for the fourth week in a row. The blue-chip CSI 300 advanced by 2.63 per cent while the Shanghai Composite Index increased by 2.18 per cent. The benchmark Hang Seng Index in Hong Kong gained 1.41 per cent. For the Lunar New Year holiday, which began on January 21, China's financial markets were closed till January 30. According to experts, China's economy would expand by over 5 per cent in 2023 as domestic demand picks up and Covid infections decline.

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