Wall Street Bounces Back

The week could have ended on a negative note with markets driven by concerns arising from the U.S. inflation data. The figures have prompted inquiries into whether investors might be overly sanguine about the prospects for interest rate cuts in the first half of 2024. As reported by the U.S. Labor Department, headline inflation reached 3.4% in the year to December, marking an uptick from the 3.1% recorded in November. This surpasses the economists' consensus forecast of 3.2%. But on the flip side, data released earlier Friday showed that U.S. producer prices (PPI) unexpectedly fell 0.1% in December. Additionally, revised figures for November indicated a 0.1% fall, contrary to the earlier reports which suggested no change. This encouraging secondary inflation reading reinforces expectations that inflation will diminish in the forthcoming months even if this trajectory is anticipated to be non-linear.

Investors’ measured optimism allowed stocks to remain resilient. The benchmark S&P 500 surged by 1.84% over the week at $4,784, just below the $4,800 key resistance. The tech-heavy Nasdaq was up almost 450 points or 3.09% after kicking off the year with a loss of 3.25% the previous week.

Elsewhere, APAC and European markets were mixed. The MSCI EMU edged up 0.32% while the FTSE was down 0.84%. In Asia, the Nikkei jumped 6.59% as Tokyo's core inflation rate, a leading indicator for nationwide price trends, slowed to 2.1% in December from 2.3% in November. Despite the disastrous earthquake in Japan's central region denting investor sentiment at first, the crisis also triggered speculation around a possible delay in the Bank of Japan's plans to roll back its ultra-accommodative policy. This comes as the country braces for massive post-disaster reconstruction efforts. In China, equity markets saw renewed weakness this week after dismal PMI readings for December (49.00 compared to 49.40 in November). The Shanghai Composite index lost 1.61%. The Taiwan Stock Exchange weighted-index treaded water (-0.04%) ahead of the presidential and legislative elections which were ultimately won by Lai Ching-te of the China-skeptic Democratic Progressive Party (DPP).

SEC approves first spot bitcoin ETFs      

The U.S. Securities and Exchange Commission has given the green light to the first ever spot Bitcoin ETFs. This move is seen as a landmark event for the world's largest cryptocurrency and the crypto industry. The SEC approved 11 applications, featuring prominent names such as BlackRock, Ark Investments/21Shares, Fidelity, Invesco, WisdomTree, Hashdex, Franklin Templeton, Bitwise, Valkyrie, VanEck, and Grayscale. Bitcoin and Ethereum advanced on the news before erasing all gains, ending the week in the red.

Tech shines, Energy falls      

Information technology was the best performer among the S&P sectors this week, up 4.86%, in the wake of NVIDIA (NVDA, +11.43%) and Microsoft (MSFT, +5.63%) boosted by AI hype. This stellar performance claws back the earlier losses from the start of the year. Communications services also fared well (+3.44%), pushed higher by Meta Platforms (META, +6.40%) and Alphabet (GOOG, +4.99%).

By contrast, the energy sector lagged behind (-2.39%), weighed down by falling oil prices (WTI down 1.53%) despite Middle East tensions with Houthis’ escalating attacks against commercial vessels in the Red Sea. Weak oil demand in the U.S. dictated the bearish narrative. The Energy Information Administration (EIA) revealed that U.S. crude oil stockpiles rose unexpectedly in the week ending Jan. 5th and fuel inventories increased more than expected, with distillates building to their highest level in over two years.