#LaneClarkTPP Via #ZeroHedge: Magnificent 7 Driving Stocks To All Time Highs, But Is Bubble About To Burst[?]

Only a few markets made money this week. The biggest gainer was the Irish stock market which made over 5%, although this was mostly making back losses from the start of the year.

The biggest losers were Finland’s Helsinki 25, Belgium’s BE 20 and Portugal’s PSI20, all of which fell more than 3% over the week.

The UK’s FTSE 100 and France’s CAC 40 weren’t far behind after the annual rate of UK inflation defied expectations for further easing in December, ticking higher to 4.0% from 3.9% in November — the first increase in 10 months.

The Office for National Statistics attributed the acceleration, in part, to higher tobacco prices. Core inflation, which excludes volatile energy and food prices, was unchanged at 5.1%.

Other data provided mixed signals for policymakers. Growth in wages, excluding bonuses, slowed to its weakest pace in nearly a year, rising 6.6% from year-ago levels in the three months through November. However, retail sales volumes were much weaker than expected in December, falling 3.2% sequentially for their biggest month-over-month drop since January 2021.

In Europe

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The pan-European STOXX Europe 600 Index ended the week 1.58% lower as comments from central bank policymakers prompted financial markets to scale back bets on an early reduction in interest rates.

Major stock indexes were mainly softer. France’s CAC40 Index dropped -1.25%, Germany’s DAX declined -0.89% and Italy’s FTSE MI Beased -0.61%.

European government bonds were generally weaker. Yields on Germany’s two-year sovereign note climbed to more than 2.7%, while the yield on Italy’s two-year note increased to 3.2%. In the UK, the yield on the two-year gilt reached 4.2% after data indicated that inflation had accelerated, dousing hopes for a reduction in interest rates.

The German economy shrank 0.3% in the final quarter of2023, according to a preliminary estimate, but an upward revision to the previous quarter meant that Germany avoided a second straight quarter of contraction — the technical definition of a recession. However, gross domestic product is estimated to have shrunk by 0.3% over the whole of 2023.

In the US

Stocks in the US ended mostly higher over the holiday-shortened week, although the advance was narrow — an equally weighted version of the S&P 500 Index recorded a modest loss — and heavily focused on growth stocks. Information technology stocks outperformed, helped by a rally in semiconductor shares. 

On Tuesday we saw a plunge in an index of manufacturing activity in the New York region, which reached its lowest level since early in the pandemic. A similar measure in the Mid-Atlantic region also surprised modestly on the downside when it was released Thursday, but it appeared to ease investors’ concerns in the wake of the early report, according to our traders.

Conversely, Wednesday’s December retail sales numbers easily exceeded expectations, suggesting that the consumption side of the economy remained in a much more solid condition. Retail sales jumped 0.6% in October, with online sales growing 1.5% and hitting a new record high. On Friday, the University of Michigan issued a preliminary report that its index of consumer sentiment jumped in January to its highest level in nearly three years and by the most since 2005.

Expectations for rate cuts in 2024 fell sharply over the week, with futures markets pricing only a 13.1% chance of seven or more rate cuts in 2024 as of the close of trading on Friday versus 61.5% the week before. Chances of a rate cut in March fell from 81.0% to 47.4%. The decline appeared due in part to comments Tuesday by Fed Governor Christopher Waller, who told a virtual conference that “I see no reason to move as quickly or cut as rapidly as in the past” given the healthy state of the economy.

Comments that would normally hurt growth stocks, seem to have only damaged the small caps. The Russell 2000 is now down over -4% on the year which is even more than the FTSE at -3.36%.

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In Asia

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 1.1% to reach a 34-year high and the broader TOPIX Index up 0.6%. Further signs of easing inflationary pressure dampened expectations about any shift in the Bank of Japan’s (BoJ’s) monetary policy stance at its January 22–23 meeting. The likelihood of the BoJ exiting its negative rates policy in the near term had already been reduced due to the economic impact of the deadly earthquake that struck Japan’s Noto Peninsula on New Year's Day.

The yield on the 10-year Japanese government bond rose to 0.66% from 0.59% at the end of the previous week, tracking U.S. Treasury yields higher.

Stocks in China slumped as the latest indicators underscored the weak outlook for the economy. The Shanghai Composite Index, which is popular among domestic investors, fell 1.72%, its eighth weekly drop in the past nine. The blue-chip CSI 300 gave up 0.44%, its ninth weekly drop in the past 10 weeks. In Hong Kong, the benchmark Hang Seng Index plunged 5.76%, according to FactSet.

China’s gross domestic product expanded 5.2% in the fourth quarter over a year earlier and for the full year of 2023, meeting Beijing’s official annual growth target. On a quarterly basis, the economy grew 1.0%, up from the third quarter’s 0.8% expansion.

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In Commodities

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Commodities also fell this week with natural gas dropping -24%, and UK gas falling -2.54% - a good week for UK households, although don’t expect the wholesale drop to reach you any time soon.

Oil was relatively flat on the week. Gold dropped a little less than 1% while silver faired a little worse falling -2.41%.

The best buys of the week were potatoes which rallied 13.92% and Uranium which rose 14.59%.

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What to look out for next week

Central bank meetings will be the theme of next week, with decisions due from the Bank of Japan and European Central Bank, as the world continues to wait for inflation figures to fall back down to policymakers’ targets.

First up is the Bank of Japan’s latest monetary policy decision expected early Tuesday morning, which comes fresh off the heels of inflation figures released this week which showed that consumer price pressures eased in December.

Core Japanese inflation, which excludes food and energy, eased to an annual rate of 2.3% from 2.5% the month before, the lowest rate seen since June 2022, which many suggest will ease the pressure on the BoJ to change its negative interest-rate stance next week, with rates expected to stay at -0.1%.

“The central bank is still expected to try and begin the process of a more normal monetary policy over the next few months with rates expected to come out of negative territory in the first half of this year,” said analyst Michael Hewson from CMC Markets.

On Wednesday, the European Central Bank will also announce its policy decision and is also widely expected to stand pat on rates for the time being, leaving the main refinancing rate at 4.5%

On the macro front, the closely watched US personal consumption expenditures index – the Federal Reserve’s preferred measure of inflation – is scheduled for Friday and is forecast to show that the annual rate of inflation eased to 3.0% in December from 3.2% in November – which was already the lowest level since April 2021.

In terms of major corporate news, Crest NicholsonHoldings, Associated British Foods and Premier Foods will update the market on Tuesday; followed by easyJet on Wednesday; IG Group, Wizz Air and Britvic onThursday; and Superdry and WH Smith on Friday.

In the US we’ll get earnings from General Electric, Johnson & Johnson, Procter & Gamble, Verizon, Netflix and Tesla.