Introduction

January 2024 began on a cautious note as global investors reassessed the timing and scale of anticipated interest rate cuts. After the rally in Q4 2023, markets digested mixed economic data, corporate earnings, and central bank signals with a more measured outlook. While overall sentiment remained positive, equity momentum slowed and yields rebounded modestly. Geopolitical tensions in the Middle East and continued uncertainty around China's economic recovery added complexity to the global investment landscape.

United States

U.S. equities were broadly flat in January. The S&P 500 edged up 1.6% while the Nasdaq Composite posted a more modest 1.0% gain. Investor focus shifted to earnings season and the Federal Reserve's January meeting, where rates were held steady at 5.25%-5.50%. Fed Chair Jerome Powell pushed back on expectations for a March rate cut, warning that more evidence of sustained disinflation was needed before easing could begin.

The December CPI report showed headline inflation at 3.4% and core inflation at 3.9%, slightly above forecasts. Meanwhile, GDP data showed the U.S. economy grew at an annualised pace of 3.3% in Q4 2023, reflecting strong consumer spending and labour market resilience.

Europe

European equities declined in January, with the Euro Stoxx 50 falling 2.1%. Softer PMI data and continued weakness in Germany and France weighed on sentiment. ECB President Christine Lagarde maintained a cautious tone, pushing back on early rate cut expectations despite inflation falling to 2.8% in the eurozone.

The European Central Bank kept rates unchanged and stressed that wage pressures, though easing, would remain a key focus. Bond markets in Europe sold off slightly, with bund yields rising as expectations for a March rate cut were rolled back to Q2 or later.

Asia-Pacific

Asian markets were mixed. Japan's Nikkei 225 continued its upward trend, gaining 6.5% and reaching multi-decade highs, driven by foreign inflows, corporate governance reforms, and a weak yen. The Bank of Japan left its yield curve control policy in place, though signalled a potential shift in coming months.

China's markets struggled. The Hang Seng Index fell 9.2% and the Shanghai Composite declined 6.3% amid persistent concerns over the property sector, capital flight, and deflationary pressures. Investors were disappointed by the lack of major stimulus announcements ahead of Lunar New Year. Australia's ASX 200 rose 1.7%, supported by strong mining exports and a stable economic backdrop.

Emerging Markets

Emerging markets underperformed in January, with the MSCI Emerging Markets Index down 4.6%. Weakness in China, political unrest in parts of Latin America, and rising U.S. yields weighed on capital flows. Currency volatility picked up, particularly in Asia and Eastern Europe.

India's Nifty 50 remained resilient, finishing slightly positive for the month. Optimism around FY24 growth, government spending ahead of elections, and tech sector performance helped offset broader EM weakness. Brazil's equity market slipped 1.8% as inflationary pressures re-emerged and fiscal discipline came under scrutiny.

Commodities

Oil prices rebounded on geopolitical risks. Brent crude rose from USD 77 to USD 83/barrel amid Houthi attacks on shipping routes in the Red Sea and escalating tensions in the Middle East. Supply chain disruptions and production uncertainty supported bullish sentiment.

Gold was range-bound, closing the month at USD 2,022/oz as inflation expectations and rate cut speculation shifted. Copper prices were flat, reflecting balanced demand and supply dynamics and mixed signals from China's industrial activity.

Fixed Income & Currencies

Bond yields rose modestly in January as markets recalibrated their expectations for central bank easing. The U.S. 10-year Treasury yield climbed to 4.15% from 3.88% in December. European and UK sovereign yields followed suit, as did select Asian local currency bonds.

The U.S. dollar strengthened slightly, particularly against the yen and Chinese yuan. The euro and pound weakened modestly, while the Singapore dollar remained stable following the Monetary Authority of Singapore's decision to maintain its current policy stance in its January review.

Outlook

January reminded investors that the transition from tightening to easing cycles will not be linear. While disinflation is underway, central banks remain cautious and data-dependent. Near-term volatility is likely as markets adjust to evolving macro signals and geopolitical risks.

Brightness Capital & Asset Advisory maintains a patient and flexible approach. We favour quality in both equity and credit markets, with a preference for U.S. and Japanese equities, shorter-duration bonds, and select emerging market exposures. The path to rate cuts remains open, but clarity will depend on inflation, earnings, and global economic momentum in the coming months.