This week

Backed up by a certain level of pseudoscience, the much cited “Blue Monday” is regarded as the most depressing day of the year. The formula to calculate the date incorporates many factors; the weather, debt levels after Christmas spending, time since Christmas, time since New Year’s resolutions have been broken, low motivational levels and the feeling of a need to take action. Whilst there is undoubtedly some truth behind this, the concept was actually first used by a UK holiday company, Sky Travel, back in 2005, in an attempt to lure consumers into wanting to book a trip to escape the gloom.

Falling on the third Monday of January and kicking off a week in which most markets ended in the red, the past 5 days have been colourful to say the least. Green has certainly been the colour most investors have seen since the start of 2023, with the domestic FTSE 100 being a particular highlight, getting to within 1% of the record highs it hit back in 2018, during Monday.

Another market that has been enjoying something of a purple patch during the opening weeks of the year has been China, seeing increased investor attention as the country recovers from the Covid pandemic, finally being able to abandon it “Zero Covid” policy a few weeks ago. Releasing its GDP figures for the final quarter of 2022, the data showed that China's economic growth has been left black and blue by the pandemic, falling to its lowest levels in nearly half a century. The data showed that GDP grew by 2.9% during the fourth quarter from a year earlier, much slower than the third-quarter's 3.9% pace. Although it is worth stating that the rate still exceeded the second quarter's 0.4% expansion and lowly market expectations of a 1.8% gain.

A full spectrum of emotions was also felt here in the UK this week as both wage and inflation data were released by the Office for National Statistics. UK earnings data showed UK workers are seeing more of the green stuff than they have for over 20 years, with wages rising 6.4% during the final quarter of 2022, compared to a year earlier. Average pay growth for the private sector rose to 7.2% whilst for those working in the public sector only saw an increase of 3.3%.

In real terms, earnings still lag inflation by quite a distance, highlighted on Wednesday by the UK’s latest inflation reading coming in at 10.5%. although down slightly from last month’s 10.7%. The data showed pressure on households remained intense, as food and drink prices rose 16.8% from this time last year, the fastest pace since 1977. On the news, sterling strengthened against the USD, possibly showing that investors believe the Bank of England’s (BoE) job is not done yet when it comes to raising rates.

Coming out the blue somewhat, US unemployment claims data on Thursday showed that the US Federal Reserve may also some way to go when it comes to tackling inflation. Unexpectedly falling this week, those filing for state unemployment benefits dropped 15,000 from 7 days ago to a seasonally adjusted 190,000 for the middle of January, much lower than the anticipated 214,000, suggesting the US labour market still remains tight despite higher interest rates.

Fears that the Federal Reserve's sharp interest rate hikes were slowing some parts of the economy but would have to continue in order to combat inflation, dragged global markets down considerably during the second half of the week. With a global recession widely expected to be on the way, just how deep and for how long though still remains something of a grey area...

Next week

After last week started on what many to consider to be the most depressing day of the year, many market watchers will be hoping to kick off the coming week in a more positive setting. Coming in at one of the top positions in the Eurozone’s Happiness Index is Germany, with Germans sharing a broadly positive outlook on life.

Where better to start the week than in Europe’s largest economy, with a guten morgen from the Deutsche Bundesbank’s monthly report. The data pack will include relevant articles, speeches, statistical tables, and provides detailed analysis of current and future economic conditions from the bank's viewpoint. The data can provide an increased level of market volatility in Europe, especially if it reveals a viewpoint that clashes with the ECB's stance.

Staying in Germany, Monday will also see European Central Bank (ECB) President, Christine Lagarde, speak at the Deutsche Börse annual reception, in Eschborn. As head of the ECB, Ms Lagarde has more influence over rate policy on the continent than most, leaving investors to scrutinise her words as they are often used to drop subtle clues regarding future monetary policy.

We stay on the continent for the duration of the first half of the week as a spate of European PMI data is released on Wednesday morning. With both the Services and Manufacturing sectors covered in the numbers, Europe’s largest economies and a composite of all the Eurozone’s nations are released. The same data is also released for both the UK and US on Tuesday, making the beginning of the week a busy one for economists.

The second half of the week focusses more on our friends across the Atlantic rather than across the Channel, being wrapped up with US monthly Core PCE Price Index numbers. The data differs from normal inflation readings in that it only measures goods and services targeted towards and consumed by individuals. Prices are weighted according to total expenditure per item which gives important insights into consumer spending behaviour. Adding even more importance to the figures if that this is reportedly the preferred piece of data for the US Federal Reserve, using it as their primary inflation measure.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used, you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 20 January 2023.