Global stocks and bonds rallied as easing inflation boosted hopes that central banks may be less aggressive in raising rates this year.

UK

The FTSE 100 rallied 1.9% over the week, nearing its highest level on record.

The UK economy unexpectedly grew 0.1% in November, with the services sector boosted by the World Cup.

British Gas owner Centrica forecast an almost eightfold increase in full-year earnings as soaring energy prices outweighed the impact of windfall taxes. Other positive corporate news was delivered by Marks & Spencer which saw upbeat trading over the festive period, including from clothing.

US

US stocks posted their largest weekly gain in two months, with the S&P 500 jumping 2.5% over the week, while the Nasdaq climbed 4.6%.

The headline rate of US inflation fell to 6.5% in December, the sixth consecutive monthly decline and the lowest rate since October 2021. Core inflation fell to 5.7%, from 6.0% in November.

Following the news, markets priced in a 96% chance that the Federal Reserve would raise rates by just 5 bps in late January, with the federal funds rate expected to peak at 4.9% in June of this year.

The University of Michigan’s US consumer sentiment index rose to a stronger-than-expected 64.6 in January, compared to 59.7 in December and the highest since April 2022.

The earnings season started with US banks posting mixed results. Year-on-year net income inched higher at Bank of America and JPMorgan, but Wells Fargo’s quarterly profit halved from a year ago primarily due to a hit from multibillion-dollar fines and revenues fell sharply at asset manager BlackRock. Meanwhile, Goldman

Sachs said it would implement the largest cuts to costs since the financial crisis.

Europe

The FTSEurofirst 300 rose 1.7% over the week.

In January, the Sentix index of eurozone market sentiment rose to its highest level since June 2022.

Germany’s economy grew by 1.9% over 2022, with growth likely to have stagnated in the final three months of the year. The resilient data has eased fears of a recession in Europe’s largest economy.

German factory output rose 0.2% over November, boosting hopes that the country’s manufacturers were holding up better than expected.

Sweden’s state-owned mining company LKAB has discovered Europe’s largest deposit of rare earth metals located north of the Arctic Circle.

Japan

The Nikkei 225 gained 0.6% over the week.

The forthcoming week sees the final Bank of Japan meeting for Governor Haruhiko Kuroda.

Pacific Basin

China’s exports fell 9.9% year on year in December, their sharpest fall in almost three years, while imports slumped 7.5% on a year-on-year basis.

Emerging Markets

The MSCI EM Index rallied 3.5% in USD terms over the week.

Supporters of former Brazilian president Jair Bolsonaro stormed Brazil’s Congress in an unsuccessful attempt to overturn the election result. Police detained hundreds of people after the riots.

Bonds

The Bloomberg Global Aggregate Index has risen more than 3.0% so far this month, its strongest start to the year since 1991.

The yield on the 10-year US Treasury bond fell 11 bps over the week to close at 3.47%.

The yield on the 10-year German Bund slid 7 bps over the week to 2.14%.

The 10-year Japanese government bond yield briefly rose above the Bank of Japan’s cap of 0.5% to reach its highest level since June 2015.

US junk bond yields have fallen sharply so far in 2023 as investors bet that the risk of recession is fading.

Commodities

Copper prices topped $9,000 per tonne for the first time since June amid growing hopes of China’s re-opening.