January was a modestly positive month for developed markets, supported by some strong corporate earnings and the sentiment that central banks may soon cut interest rates. By the end of the month that sentiment was crushed in the US as a wave of strong data was published.

Data showed that US GDP grew at an annualised rate of 3,3% in Q4 2023, down from 4,9% in the exceptionally strong Q3, but well above the expected 2,0%. For the year as a whole, GDP growth was 3,1%. Annual inflation ticked up to 3,4% in December from 3,1% a month earlier. However core inflation continued to moderate, dropping below 4% for the first time since May 2021 at 3,9%. Labour market data issued on February 2 and subsequent comments by FED's president Jerome Powell however dashed any hopes for an interest rate cut as early as March. Non-farm payrolls showed 353000 jobs added in January, nearly twice the expected number of 187000. December and the unemployment rate remained steady at 3,7%.

Despite the delay of the anticipated rate cut, US markets closed positive on the sentiment that the US may still achieve a soft landing. The Dow Jones, S&P500 and Nasdaq gained 1,22%, 1,66% and 1,02% respectively. Also the dollar gained 1,99% against the Euro to close at 1,0816.

Also in the Eurozone stock indices performed modestly well in January with the Eurostoxx 50, DAX and CAC40 gaining 2,80%, 0,91% and 1,51% respectively. Slovenia's SBI index outperformed other European indices, adding a solid 5,92% to close January at 1323,3.

Hopes of an early interest rate cut from the European Central Bank (ECB) began to fade after inflation for December was confirmed at 2,9%, up from 2,4% in November. However, inflation eased again in January 2,8% YoY. The ECB kept interest rates unchanged at its January meeting.

Once again United Kingdom's FTSE index underperformed, dropping 1,33% as inflation remains higher than in mainland Europe and effectively increased to 4,0% in December. The Pound Sterling consequently gained 1,65% against the Euro.

The main winner of the month was Japan's Nikkei, which added 8,43%, driven by large cap stocks. Foreign investors led the rally on expectations of structural changes in Japan, including the launch of the new NISA (Nippon Individual Savings Account) for Japanese retail investors and renewed expectations of a policy change by the Bank of Japan (BOJ). While the Yen depreciated, the currency loss further boosted shares of Japanese exporters.

Hong Kong shares on the other hand continued to slide with the Hang Seng index adding yet another 9,16% loss in January.

While the oil price (WTI Cushing) increased 5,86% to 75,85$ per barrel on continued tensions in the Red Sea, the natural gas price dropped a solid 16,47% to 2,1MMBtu and, at the time of this writing, is even as low as 1,833MMBtu, near the lowest in 3 decades, which we believe could presents a good investment opportunity. The gold price on the other hand is somewhat getting under pressure on higher expectations of a soft landing in the US and closed at 2067$ per ounce.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - January 2024