A mostly positive week for the U.S. economy, as initial jobless claims fell to their lowest level since 1969 and as the manufacturing sector (as measured by IHS Markit’s flash PMI) continued to expand and exceed expectations. Both readings signal a thriving U.S. economy, despite a somewhat challenging global growth environment.
That said, the housing sector remains lackluster, with existing home sales in December falling more than expected (and hitting their lowest level in three years). Additionally, U.S. crude oil inventories unexpectedly rose, adding to already swollen U.S. fuel stockpiles.
Europe’s economy delivered largely negative news last week, with the Eurozone Markit Composite PMI—a measure of overall business activity—hitting a 66-month low in January. Meanwhile, Germany’s manufacturing PMI contracted unexpectedly—the second major German economic indicator to disappoint investors in the past two weeks. On the plus side, however, France’s manufacturing PMI beat estimates and now indicates expansion in the sector. In the UK, average earnings (including bonuses) exceeded expectations.
In Asia, China’s GDP results for 2018 showed that the economy grew at its slowest pace in decades. One positive note: Industrial production rose on a month-over-month basis and exceeded market expectations. Japanese exports fell more than anticipated, but core CPI in Tokyo topped forecasts.
The U.S. equity market was down very slightly, despite strong performance late in the week. The top-performing sectors were real estate and technology. Real estate benefited from falling interest rates, while technology was boosted by better-than-expected earnings results from some semiconductor companies. In contrast, the energy and consumer staples sectors lagged. Energy was hurt as crude oil prices fell sharply early in the week. Consumer staples suffered from several factors—such as weak earnings results, slumping revenues, rising input costs and a shift by investors into more cyclical stocks.
European stocks rose slightly for the week, with cyclical areas like technology and auto & auto parts leading the way. Telecom and oil & gas stocks lagged. While only about 5% of European companies have reported their 2018 earnings results so far, earnings growth expectations fell significantly last week as many companies reported lackluster business activity. Meanwhile, Brexit news is becoming more encouraging as the risk of no deal abates. A positive resolution is likely to help UK equities. Asian markets gained ground, with lower volatility, as investors were heartened by lower equity valuations and by China’s economic stimulus initiatives.
Emerging markets also fared well. One standout: Thailand’s major index saw its largest weekly gain since last fall, as it was announced that the country will hold its first general elections since a 2014 military coup. Emerging markets equity funds saw their 15th consecutive week of inflows.