“Worrying Is as effective as trying to solve an algebra equation by chewing Bubble gum” Baz Luhrmann

While US corporate earnings have been the focus over the past few weeks, this week’s focus will turn back to macroeconomics, particularly US inflation, followed by a speech from Jerome Powell. On Wednesday, data is expected to report core inflation ticking higher to show a 0.3% monthly gain after a 0.2% rise in December; the year-over-year rate is expected to remain at 2.9%. The US consumer has taken credit for much of the resilience of the US economy since the pandemic and held up despite rising interest rates.  Could this be coming to an end?

 Last week, the University of Michigan’s Consumer sentiment survey slumped to a 7-month low. Many reports show that much of the savings built up over COVID have been tapped out. Not only that, but it would appear that US consumers are turning to their credit cards; US consumer debt unexpectedly surged by the most on record in December, reflecting massive increases in credit card balances and non-revolving credit. The delinquency rate has risen, too, with some 3.5% of card balances past due by 30 or more days and 1.8% of accounts delinquent. Both figures are more than double the post-pandemic lows recorded in 2021. At present, a robust employment market has supported retail spending. On Friday, we get the monthly US retail sales data, preceded by the latest producer prices and the monthly jobless report on Thursday—plenty to have the potential to add volatility to an already skittish market.

After the Bank of England confirmed a UK rate cut last week and reduced growth expectations, we will receive a slew of economic data this week, including the preliminary estimate for economic growth in the final quarter of 2024 and the year-over-year rate. We will also receive the monthly report. All of these are likely to confirm pretty anaemic economic growth in the UK if any at all. We also get the monthly Industrial and Manufacturing data.

The S&P 500 managed to eke out a small gain last week; however, despite the Trump supposed bump and, so far, along with what has been a resilient earnings season, the S&P 500 is not much higher than when Mr Trump triumphantly returned to the White House. The beginning of February is traditionally a weak time for the S&P, but one has to wonder if the index is running out of steam.  In contrast, the FTSE 100 has been on quite a tear in the past few weeks, thanks to resilience in commodities, financials, and industrials. It is fair to say that the UK index does not reflect the UK economy as the FTSE 100 companies, 75% of their earnings come from outside the UK. It is also the least held by active managers amongst the global indexes; some money may be chasing the index.

Stocks in Europe appear to be starting the week on a slightly positive note, despite the weak finish on Friday in the US, as Asian markets held up overnight.