INFLATION: January will set the tone for markets in Q1 and 2023. The quarter has three keys: 1) a declining US/EU inflation and interest rate shock, 2) a successful China re-opening, and 3) less tech sector headwinds. Broadening falls in US inflation pressures, spreading from goods to services and the labour market, are critical to the Fed further cooling its hiking pace in February and ending the upcycle in March. Whilst Europe’s mild winter and lower natgas prices underpin the tentative November peak in its big price rises. A further resilient Q4 corporate earnings and GDP report would buy more time for the interest rate medicine to work and ease recession fear.
CHINA: The world’s second largest economy and equity market is the other Q1 wild-card. The rapid loosening of its zero covid strategy has seen new cases surge, and may yet be worsened by the coming long new year holiday. But it holds out hope for the start of a gradual recovery in the Chinese economy as it heads into March’s National People’s Congress. This would be a key insurance policy against a global recession. But uncertainty is high, with the recent vacuum of covid data worsening the typical economic data drought over the Chinese new year period.
TECH: The IT, Communications, and tech-parts of Consumer Discretionary, sectors are a third of global equities. Markets cannot be positive if these sectors repeat their dismal last year. The Las Vegas CES will spotlight fundamental progress across EV’s, Web 3.0 and AR/VR. Whilst peaked inflation and interest rates should give some tech valuation relief after the dramatic 2022 de-rating. January’s Q4 earnings will be a big test. S&P 500 earnings are seen down 3% overall, and major tech stocks from Amazon (AMZN) to Alphabet (GOOGL) have led the earnings cuts.
All data, figures & charts are valid as of 03/01/2023