This week

It was US politician and polymath, Benjamin Franklin, who once said there are only two certainties in life: death and taxes, and whilst the death of January may be the cause of cheer for many, it seems more have tried to escape that second inevitability. The end of the month arriving on Monday this week, also brought with it the end of the tax year, with HMRC reporting that as many as 630,000 completed the online process during the final hours before the cut-off, whilst 2.3 million missed the deadline altogether.

The spirit of leaving it until the 11th hour was also not lost on global markets this week as the US tech heavy NASDAQ narrowly avoided its worst start to a year in its history. In early trading on the 31st, the index was on course to surpass the record, set when it fell 9.89% in 2008. However, after its best one-day gain since March 2021, it closed -8.99% for January, missing the landmark.  The gains were predominantly driven by Tesla, which accelerated 10.7% after Credit Suisse raised the electric car maker's stock rating to "outperform".

Minding the GAAP to continental Europe, Wednesday saw inflation in the Eurozone hit a record level of 5.1%, much higher than consensus estimates of 4.4%. Steeper increases in the price of energy and food accounted for the majority of the rise and was only partly offset by slower growth in the prices of manufactured goods. Despite this, the European Central Bank (ECB), kept policy unchanged the next day, staying on track to provide copious stimulus for months to come. Making only the smallest change to its policy stance, the ECB removed a clause stipulating that its next policy move could be in "either direction".

Thursday became a story of two central banks as the Bank of England raised interest rates for the second time in three months, in an attempt to curb a rapid rise in the cost of living. The increase to 0.5% from 0.25% came as the Bank said inflation was on course to hit a 30-year high, driven largely by energy costs. The move came as little relief to investors, who had fully priced in the move, having a muted impact on both stock and currency markets.

Whilst many stayed up filling in their SA100s this week, there was one firm that had not accounted for any losses over the period. Facebook saw its shares plunged more than 20% in a day, after the social media company posted a weaker than expected forecast, blaming Apple's privacy changes and increased competition for users from rivals like TikTok. What was really noteworthy however, was Facebook’s global active quarterly users declined for the first time ever, from 1.930 billion to 1.929 billion. The rout on its shares wiped $200 billion from the firm’s market cap, dragging down other social media behemoths such as Twitter, Pinterest and Snapchat along with it. A painful day for the sector would be a fair deduction.

Next week

After a week in which the central banks either side of the English Channel began to diverge in their response to spiralling inflation, it will be interesting to see what each economy makes of it all. The coming week will give us a quite literal of view of this by ushering in German Industrial Production figures, released on Monday.

With Germany being the largest economy within the Eurozone, the numbers will take on added significance and should have add a larger impact on markets that data from any other individual Eurozone member. The numbers themselves will detail the change in the total inflation-adjusted value of output produced by manufacturers and utilities, acting as a leading indicator of economic health. Production reacts quickly to the ups and downs in the business cycle and is correlated with consumer conditions such as employment levels and earnings.

From large players in the global economy to the smaller ones, focus will shift during the middle of the week to the US’s NFIB Small Business Index reading. The data derives from a survey of US small businesses where respondents are asked to rate the relative level of economic conditions including labour markets, inventories and sales, capital spending, inflation, earnings and wages. Although the US market is dominated by some of the largest companies in the world, it is often the smaller firms, in this case defined as those that hire 1-250 employees that can give us the greatest insight into the real coal face of an economy.

The following day gives us a further gauge as to the strength of the world’s largest economy with both monthly inflation and jobless claims data being released. With the US Federal Reserve signalling that they will begin to raise rates in March, the combined data may have some impact on the trajectory of subsequent hikes.

Rampant inflation has been a constant thorn in the side of the Bank of England (BoE) too, with the central bank being forced to raise rates the previous week. With this in mind, Governor of the BoE, Andrew Bailey, is due to speak at an online event hosted by TheCityUK on Thursday. Giving his thoughts on the domestic economy, his words will be scrutinised by investors for any clues as to future rate moves.

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 in February 2022.