Market Update – 26th January 2022.

The most notable data we had to start the week was the Purchasing Managers’ Index, which you will hear referred to as PMI. It is a monthly measure providing information about current and future business conditions.

In the US and UK, manufacturing and services PMI readings were both lower than last month, and in the Eurozone, composite PMI came in lower than last month at 52.4.

Whilst these measures show a slowdown of growth, these readings do reflect growth, and are into expansionary territory.

Across the board, the readings were broadly lower than last month’s, which is to be expected, given that these measures are based on last month and also given the impact that the Omicron variant has had on businesses, as it infected populations, caused further restrictions and its severity was assessed.

However, as the year progresses, we should see a boost to PMI data, as we’re seeing lockdowns ease and economies reopen, with this week’s release as a good base for businesses to build from.

For example, in China we have seen Xi’an – the home of the Terracotta Warriors – reopen with most restrictions lifted. This shows that, whilst the Chinese government will fully lockdown a city and economy to protect individuals from infection, they will also fully reopen a city, and enable people (and companies) to get back to business as usual. We have said previously that valuations in China are attractive, and this reopening is one of the key catalysts that the economy needs to grow.

On another note, do you enjoy seeing the speed skating, skeleton, ski jumping or snowboarding? Do you get a buzz from watching bobsleigh or biathlon? Well you’re in luck – the Chinese government certainly want to ensure that the Beijing Winter Olympics will go ahead in two weeks. In preparation, 2 million residents of Beijing are being tested for coronavirus, as part of China’s zero-Covid policy.

Turning to the US, later today we have the Fed interest rate decision and press conference. As we have said in previous updates, markets are pricing in four interest rate increases, starting with a 0.5% increase in March. We think that it is unlikely that we will see an approach that is more hawkish than the markets are pricing in, meaning that after holding their breath, markets should be able to breathe a sigh of relief following the press conference.

Hannah Owen, Portfolio Specialist