Written by Dominic Williams

Last week, the S&P 500 Index, regarded as the primary gauge for US large-cap stocks, achieved a historic milestone by surpassing the significant 5,000 mark for the first time. This symbolises the strength of the US market, despite a period of elevated interest rates. However, this market upswing continues to be driven by a select few, notably Nvidia and Meta, with small cap indices and equally weighted indices significantly behind.

In Japan, both major indices exhibited strong performance. The Topix, a broad market-weighted index, reached its own record high, hitting a 34-year peak of 2,576 points following a weekly growth of 0.72% in local currency terms. Additionally, the Nikkei 225, a price-weighted index, climbed above 37,000 points for the first time in 34 years, experiencing a growth of 2.04% in local currency terms. These impressive performances were fuelled by strong foreign interest in Japanese stocks and a weakening Yen, which continued its decline against the Dollar following a speech delivered by the Deputy Governor of the Bank of Japan. The governor’s subdued outlook on the prospect of rate hikes from the Central Bank contributed to market sentiment, stating, “even if the bank were to terminate the negative interest rate policy, it is hard to imagine a path in which it would then keep raising the interest rate rapidly”.

On Thursday, China released its latest inflation figures, revealing year-on-year deflation in January 2024. The Consumer Price Index (CPI) showed a 0.8% decrease in prices, the largest decline in over 14 years, exceeding market forecasts of a 0.5% fall. This deflationary trend was attributed to sectors reliant on consumer demand, such as electrical goods and automotive industries, which have been offering discounts and reducing prices amid declining consumer spending.

At the beginning of the week, the Office for National Statistics (ONS) in the UK released an update to its Labour Force Survey, based on reweighted survey results. The update indicated that for the period spanning September 2023 to November 2023, the unemployment rate stood at 3.9%, which is lower than the previously reported 4.2%. Additionally, the Halifax House Price Index, released last week, indicated a 2.5% year-on-year increase in house prices in January 2024. This follows a recent downtrend in mortgage rates from lenders amid heightened competition, a decrease in inflationary pressures for consumers, and a more resilient labour market evidenced by the previous revisions of unemployment figures.

These data points underscore the UK’s unexpected resilience, potentially delaying the Bank of England’s plans to reduce rates in response to stronger-than-anticipated data.


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