- Optimism blows through indices amid hopes of softer landings for economies.
- Growth stocks regain ground as the Federal Reserve is expected to keep rate rise to a minimum.
- Consumer confidence rises in Germany, boosting hopes of more resilience.
- UK Public finances sideswiped by high energy help bill and soaring debt costs.
- Pound still hovers around $1.24 despite more precarious fiscal position.
Q4 2022 hedge fund letters, conferences and more
Winds of optimism are still blowing through financial markets, with indices in Europe and Asia higher after stocks on Wall Street sailed ahead at a clip. Investors are looking through the storm clouds hovering over the global economy hoping that the downpour won’t completely drown growth.
There was a fresh fall in US business activity, which dropped for the 10th month in a row in December, according to the Conference Board’s reading. That added to hope that further rate hikes will be minimal, and the economy will avoid lurching into the treacherous waters of a deep recession.
Growth Stocks Regain Ground
Growth stocks are the biggest beneficiaries of these fuller sails of investor confidence, with many of the giants sideswiped by falls in 2022, gaining ground with Tesla Inc (NASDAQ:TSLA) up 7.7% and Meta Platforms Inc (NASDAQ:META) gaining 2.8%.
But it could just be a pause in the rain, given fresh earnings reports are due from some big players such as Microsoft Corp (NASDAQ:MSFT) and Verizon Communications Inc. (NYSE:VZ) later and a raft of other economic data out later this week could still curb enthusiasm.
Rise In German Consumer Confidence
Lower energy prices are helping consumer confidence rebound, with the latest snapshot of sentiment in Germany showing the highest reading since August. It’s another positive sign for companies fearing the effects of well-flagged interest rate rises, indicating that consumers are showing resilience, but they are still likely to stay cautious.
A retreat in gas prices, with the cold snap expected to end soon, is another welcome sign for companies and consumers. However crude prices are still hovering around the highest levels in seven weeks amid higher demand for oil in China with Brent crude trading at $88 a barrel.
Limiting the effect of the painful rises in gas and electricity prices has been a gut punch for the UK public finances. The government was forced to borrow £27.4 billion in December, the highest figure for the month since records began in 1993. Excruciatingly high debt interest is also taking its toll because index-linked gilts are pegged to scorchingly high RPI inflation.
Pound Gains A Little More Ground Against The Dollar
It’s the third month in a row that borrowing has exceeded expectations, and faced with this deteriorating deficit, it will leave the government with no wriggle room for any quick tax giveaways in the March Budget and it’s likely that a very tight grip will be kept on spending.
Despite the fiscal squeeze, the pound gained a little more ground against the dollar, trading around $1.24, amid expectations that the Bank of England will still press on with steeper interest rate rises in the months ahead, compared to the US Federal Reserve.
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
