European markets post worst month since October 2020 European stock markets have recorded their biggest monthly fall in over a year. The pan-European Stoxx 600 index, which covers a wide range of European stocks, fell by 3.9% this month - despite a modest rally today. That’s the biggest monthly drop since October 2020, when the Stoxx 600 lost over 5% (just before the news of successful Covid-19 vaccines triggered a global rally). Europe’s technology sector had a particularly poor month, falling by 12% in January. That tracked heavy losses among US tech stocks, as investors anticipated a rise in US interest rates and an end to the cheap money that has boosted fast-growing but unprofitable tech stocks. But the oil sector jumped by 8.5% this month, while bank stocks gained 7.3%. Germany’s DAX has lost 2.6% this month, while France’s CAC slipped by 2.1%. Analysts at Oxford Economists say we are seeing an “overdue correction, not the start of a new bear market”. They say: History would suggest there could be some further downside to come as the average non-recessionary correction is around 15%. However, investor sentiment has already adjusted sharply, and we believe we have now seen the bulk of the move in bond yields. A stalling earnings upgrade cycle has added to investor concerns, but top-line growth is likely to remain robust amidst the ongoing global upswing and the listed corporate sector appears relatively well placed to ride out the monetary tightening cycle. We maintain our modest overweight on the asset class. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, says the sharp fall in some “high-quality tech firms” are creating opportunities for longer-term investor: Rather than giving up on tech in the face of near-term headwinds, we recommend a more selective approach: balancing away from mega-caps toward companies exposed to artificial intelligence, big data, and cybersecurity—the ABCs of tech—which we see as benefiting most from secular growth.” Wall Street close: S&P"s worst month since March 2020 And finally... the US stock market has closed with strong gains, after a turbulent month in which worries about US interest rate rises, and the Ukraine crisis, hit shares. The S&P 500 has jumped by 1.9% today, led by technology stock such as Netflix and Tesla which both gained over 10%. But that still leaves the S&P 500 down around 5.26% in January, its worst month since March 2020. The Nasdaq surged by 3.4% today, but was still down almost 9% this month --also its worst month since the crash of March 2020. According to Reuters it’s the S&P 500’s worst January drop since 2009, while the Dow had its weakest start to a year since 2016, and it was the Nasdaq’s worst January since 2008. Fears that the US central bank would hike interest rates four or more times this year, even as the economy slows, hit markets hard this month As Art Hogan, chief market strategist at National Securities, told CNBC: Between the amount of volumes that we saw and the massive swings that we saw in markets, the volatility really felt like it had a crescendo,” Those crescendos usually happen when there is a massive amount of capitulation in markets and everything is for sale,” Hogan added. “For most of the month we would see money coming out of growth but going into cyclical. Then that would unwind and growth would catch a bit. That was all true until this past week. We’ve seen a bit of the aftermath of that storm, and that seems to be more stabilization.” On that note, goodnight... GW Mexico in technical recession after weak end to 2021 Mexico has fallen into recession, as supply chain disruption, a new labour law and a lack of economic support in the pandemic all hit its economy. Mexico’s GDP fell by 0.1% in the last quarter of 2021, statistics body INEGI reported, following a 0.4% in Q3. Two consecutive quarters of contraction are a technical recession. Reuters adds: The disappointing Mexico data comes as Brazil’s weakened economy is in danger of sinking deeper into recession this year ahead of October’s presidential election, as anxiety over the vote and steep interest rate rises continue to hurt growth, according to a Reuters poll. “With its weak Q4 outturn, Mexico has joined Brazil in technical recession, an extremely disappointing result that leaves real GDP in Mexico a whopping 4% below its mid-2019 pre-Covid peak,” said Fiona Mackie, regional director, Latin America and the Caribbean at Economist Intelligence Unit. Wall Street continues to finish a shaky January on the front foot - with the Dow up over 0.5% in late trading and the Nasdaq Composite over 2% higher. Many investors will be relieved to put January behind them, though, says Danni Hewson, AJ Bell financial analyst: “January stormed in full of optimism that Omicron wouldn’t pack the punch Delta did and that recovery would bring revitalisation for global economies. There will be many investors who’d rather like a do-over, but markets can be unforgiving. Today’s action has been pretty subdued but broadly positive, but whilst the Dow Jones has managed to find a forward gear London’s FTSE ended the day in reverse. But casting around at today’s economic data it’s hard to pin down whether the end of the month leaves up with the glass half full or half empty. “On one hand Germany’s inflation numbers have come down, on the other output from the Chinese manufacturing sector fell to its lowest rates in two years in January, suggesting there’s more choppy water ahead. But then if you look at the Baltic Dry Index it suggests shipping costs are finally on their way down, but according the JLR’s latest and rather disappointing update there’s still no end to the global chip shortage. In a nutshell the world is in post-covid flux and it’s also dealing with a soupçon of nerves about how the situation in the Ukraine will ultimately play out. “Whilst Goldman Sachs has cut its US growth forecast growth stocks seemed very much back in vogue today with the Scottish Mortgage Investment Trust topping London’s blue-chip index and Baillie Gifford’s US Growth Trust making decent gains on the FTSE 250 and Tesla and Netflix joining e-commerce Pinduoduo to help push up the Nasdaq. But though the day has been full of tech cheer the month has been a difficult one for the tech heavy index and it’s still down more than 10% since the start of the month, whilst the FTSE 100 has managed to emerge slightly up on where the year started. “February will undoubtedly bring its own tribulations beginning with the Bank of England’s latest rate rise decision. Investors are confident another hike is on the cards but there is also that little seed of doubt until the decision drops. Certainly, the pressure to do something to help cash strapped consumers will weigh heavily but there is a time lag and relief won’t be instant. “ Here’s our news story on the closure of Tesco’s Jack’s discount chain: UK food and drink firms warn of shortages as ‘bailout’ of CO2 industry ends Back in the UK, food producers and brewers have warned of shortages of meat, beer and fizzy drinks, as well as higher prices, after the government opted not to renew support for the carbon dioxide industry. Meat processors, brewers, bakers and soft drink producers all use CO2 in making and packaging their goods. It is also required for the humane slaughter of animals including pigs and chickens. The Department for Business, Energy and Industrial Strategy (BEIS) said last autumn it had brokered a deal between businesses in the CO2 sector, to ensure supplies of the gas to the food and drink industry, as well as hospitals and nuclear power plants. It came after the government was forced to use taxpayer money to fund a short-term bailout for CF Industries, which accounts for 60% of the UK’s CO2 supplies, to prop up the company and stave off supply chain chaos. CF Fertilisers, which is owned by a private firm in the US, had halted production at two of its plants, Billingham on Teesside and Ince in Cheshire, as a result of rocketing prices of gas required to power its operations. However, the three-month deal came to an end on 31 January, and BEIS said it was now up to the CO2 industry to work together. A spokesperson from the department said: “We welcome industry’s agreement in October to ensure CF Fertilisers on Teesside can continue to operate even during the current period of high global gas prices. It is for the CO2 industry to ensure supplies to UK businesses.” Soros: Xi threatened by China’s real estate crisis and Omicron The financier and philanthropist George Soros has warned tonight that China’s president Xi’s position could be threatened by the Covid-19 pandemic, and the crisis in China’s real estate sector. At an event sponsored by the Hoover Institution at Stanford University, Soros is explaining that China will try to use the Winter Olympics, which start later this week, as a propaganda victory for its system of strict controls. But, Soros warns, domestic problems could yet prevent Xi from extending his rule to a third term. when the Communist Party chooses its president and general secretary later this year. Soros, who fears Chinese leader Xi poses the “greatest threat” to open societies, argues that China is facing an economic crisis centered on the real estate market. Beijing’s efforts to slow the slow the boom has made it hard for indebted developer Evergrande to meet its obligations, causing a market downturn. In prepared remarks for the event, Soros says: When the main selling season started in September, there were many more sellers than buyers. For a while there were hardly any transactions at the advertised prices, but today prices for both land and apartments are starting to fall. That will turn many of those who invested the bulk of their savings in real estate against Xi Jinping. Evergrande is now in receivership and other developers face a similar fate. The creditors of Evergrande started fighting to improve their position in receiving bankruptcy distributions. The courts took charge, and their first move was to protect the subcontractors who employ some 70 million migrant workers. It remains to be seen how the authorities will handle the crisis. They may have postponed dealing with it for too long, because people’s confidence has now been shaken. Xi Jinping has many tools available to reestablish confidence – the question is whether he will use them properly. In my opinion, the second quarter of 2022 will show whether he has succeeded. The current situation doesn’t look promising for Xi. He also claims that Omicron “threatens to be Xi Jinping’s undoing”, and that Beijing is maintaining its lockdown because its vaccines do not provide protection against the more infectious variant: Xi Jinping has also encountered serious problems with vaccines. The Chinese vaccines were designed to deal with the Wuhan variant, but the world is now struggling with other variants, first Delta and now Omicron. Tesco has abandoned its low-cost “Jack’s” format, launched back in 2018 to take on discount rivals Aldi and Lidl. Britain’s biggest retailer says it will no longer operate its 14 “Jack’s” stores, named after Tesco’s founder Jack Cohen. Six will be converted to Tesco superstores, with the remaining seven earmarked for closure in the coming months. The “Jack’s” stores aimed to be the cheapest in town, by offering a much smaller range than a full Tesco and cutting out frills. But the brand hasn’t really been a success, and only makes up a small fraction of Tesco’s total estate. Some 130 roles in the seven stores that are to close and in head office will be affected by the changes. Tesco says it will try to find staff affected other roles within the company, but unions are Tesco UK and Ireland CEO Jason Tarry says: “With the learnings from Jack’s now applied, the time is right to focus on ensuring we continue to deliver the best possible value for customers in our core business,” Daniel Adams, Usdaw national officer, says staff will be devastated: “Tesco has informed us that they are looking to undertake restructures across the business. Clearly this will be incredibly unsettling for those who may be affected. “We should not forget the role that key workers have played throughout the Coronavirus pandemic and to receive this news is devastating. Tesco is also closing meat, fish or hot deli counters in a further 317 stores. Brexit News: Demands by French customs officials over the type of signature they will accept on post-Brexit paperwork has been blamed by UK business leaders for causing long queues of lorries on approach roads to Dover. Two year after Boris Johnson smiled for the cameras, fountain pen in hand over the EU withdrawal agreement, the British Chambers of Commerce (BCC) said a minor disagreement over signatures on customs paperwork had arisen between Britain and France. William Bain, the head of trade policy at the BCC, said the trade body had heard from UK exporters that French customs officials were demanding a wet signature on border documents for shipments of animals and plant products from the UK. However, he said much of the documentation is produced digitally, creating unexpected holdups on deliveries from Dover to Calais. “One of the issues at Dover currently appears to be linked to the export of food products across the Channel,” Bain said. “Like many of the problems this looks to be down to a differing interpretation of how the trade arrangements work after leaving the EU. “It is the latest in a string of issues with the trade deal that speaks to the wider problems of interpretation, inconsistent application and glaring gaps in its coverage.” Nasdaq leads Wall Street higher Meanwhile on Wall Street, stocks are wrapping up January with a late rally, reversing a little of this month’s damage. The Dow Jones industrial average is now up 0.5%, or 162 points at 34,888, taking its losses this month to just 4%. The tech-focused Nasdaq is charging higher, now up 2.4% today -- but that still leaves the index down 10% for January. The mood in equity markets is a lot more optimistic today than it was last week, and even though the headlines about the Federal Reserve potentially hiking interest rates several times this year are still doing the rounds, says David Madden, market analyst at Equiti Capital. This day last week, European and US indices fell to multi-month lows because of mounting fears about a possible war between Russia and Ukraine, worries about quick monetary tightening from the Fed were a factor too. Over the past week, stock markets have ticked up, and it seems that dealers are getting used to the idea the US central bank will carry out multiple rate hikes this year. The NASDAQ 100 has suffered the most during the recent bearish period due to its large exposure to technology stocks, by contrast the NASDAQ 100 is up over 2% today - its high mark in more than one week. The eurozone economy expanded by 0.3% in the last quarter of 2021, and that was a large drop off from the 2.2% growth posted in the preceding quarter. Economists were expecting 0.4%, it wasn’t a surprise that the growth reading was disappointing seeing as last week it was announced that Germany’s economy contracted by 0.7% in the last three months of the year. It spells trouble for the entire currency bloc if the largest economy is going through a phase of negative growth. European markets post worst month since October 2020 European stock markets have recorded their biggest monthly fall in over a year. The pan-European Stoxx 600 index, which covers a wide range of European stocks, fell by 3.9% this month - despite a modest rally today. That’s the biggest monthly drop since October 2020, when the Stoxx 600 lost over 5% (just before the news of successful Covid-19 vaccines triggered a global rally). Europe’s technology sector had a particularly poor month, falling by 12% in January. That tracked heavy losses among US tech stocks, as investors anticipated a rise in US interest rates and an end to the cheap money that has boosted fast-growing but unprofitable tech stocks. But the oil sector jumped by 8.5% this month, while bank stocks gained 7.3%. Germany’s DAX has lost 2.6% this month, while France’s CAC slipped by 2.1%. Analysts at Oxford Economists say we are seeing an “overdue correction, not the start of a new bear market”. They say: History would suggest there could be some further downside to come as the average non-recessionary correction is around 15%. However, investor sentiment has already adjusted sharply, and we believe we have now seen the bulk of the move in bond yields. A stalling earnings upgrade cycle has added to investor concerns, but top-line growth is likely to remain robust amidst the ongoing global upswing and the listed corporate sector appears relatively well placed to ride out the monetary tightening cycle. We maintain our modest overweight on the asset class. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, says the sharp fall in some “high-quality tech firms” are creating opportunities for longer-term investor: Rather than giving up on tech in the face of near-term headwinds, we recommend a more selective approach: balancing away from mega-caps toward companies exposed to artificial intelligence, big data, and cybersecurity—the ABCs of tech—which we see as benefiting most from secular growth.” The International Monetary Fund and World Bank have postponed their planned annual meeting in Marrakesh, Morocco, by a year, due to “continuing uncertainty” over the COVID-19 pandemic. The Marrakesh gathering has been pushed back by 12 months, to October 2023, meaning this year’s annual meeting will take place in Washington D.C. This is the second time that the meeting in Marrakesh has been delayed by 12 months due to Covid - it was meant to take place in 2021, before the pandemic disrupted plans. The Annual Meetings are usually held for two consecutive years at the World Bank Group and IMF headquarters in Washington, D.C. and every third year in another member country. The smaller FTSE 250 index, which is more domestically-focused, had a very bruising January. It fell by around 6.7% this month, the worst since March 2020. After a choppy month, the UK’s blue-chip index has ended the day little changed. The FTSE 100 index dipped by 2 points to 7464 points, with mining stocks and UK supermarket chains leading the fallers. Rio Tinto lost 3.7%, Anglo American and Sainsbury’s both fell by 2.8%, while Glencore slipped by 2.6% and Tesco finished 2.1% lower. Investment trust Scottish Mortgage jumped 5%, tracking the recovery in tech stocks, with online grocery firm Ocado 4.3 higher. For the month, the FTSE 100 gained 1% -- rather better than other markets this month.... Growth at factories across Texas slowed to an eight-month low, in another sign that America’s economy has slowed this year. The Dallas Federal Reserve’s latest Texas Manufacturing Outlook Survey shows that growth weakened this month. The production index, which measures state manufacturing conditions, came in at 16.6, an eight-month low, down from 26 in December. General business activity, which tracks broader business conditions in the manufacturing sector, dropped to 2.0 from 7.8, the lowest level since July 2020. Measures of capacity utilization and shipments also showed a slowdown in growth. Prices and wages continued to increase strongly in January, though price pressures eased slightly. The survey also shows that factory bosses are more concerned about economic prospects. Uncertainty regarding outlooks escalated further, with the index pushing up 12 points to 30.8, its highest reading since April 2020 after the initial onset of the pandemic. Full story: China"s factory output hit by Covid Output from China’s manufacturing sector slowed to its weakest in almost two years in January as the country’s tough anti-Covid measures forced factories into temporary shutdowns. A monthly snapshot of industry in the world’s second biggest economy showed production being hard hit by Beijing’s zero-tolerance approach to the pandemic. The Caixin/Markit purchasing managers’ index dropped from 50.9 in December to 49.1 in January – putting pressure on China’s policymakers to step up support for the flagging economy. A reading below 50 suggests output is contracting rather than expanding, with January’s figure the weakest since February 2020, when blanket restrictions were in force during the first wave of the Covid-19 virus. Wang Zhe, a senior economist at Caixin Insight Group, said: “Over the past month, there were Covid-19 flare-ups in several regions in China, underscoring the downward pressure on the economy. “Both supply and demand in the manufacturing sector weakened. Several regions tightened epidemic control measures following the resurgence, which impacted production and sales of manufactured goods. The subindexes for output and total new orders in January fell to their lowest since August. Overseas demand shrank at an even faster pace.” Goldman Sachs has cut its forecast for US growth this year. It has warned that the omicron variant and ongoing supply chain problems will slow the recovery, as the boost from government spending weakens. Reuters has the details: Goldman Sachs cut its GDP forecast in 2022 to 3.2% from a consensus 3.8% as U.S. growth is likely to slow abruptly early in the year as fiscal support fades and the Omicron coronavirus weighs. Goldman now expects annualized real GDP growth in the first quarter of 0.5% versus its previous estimate of 2.0%, as spending on virus-sensitive services declined sharply since early December, the bank said. But the rebound from Omicron is likely to be swift, Goldman said. Wall Street opens The final day of a torrid month on the New York stock market is underway... and trading is mixed. The Dow Jones industrial average of 30 large US companies is down 157 points in early trading at 34,568 points, down 0.45%. Aircraft maker Boeing is the top riser, up 1%, while construction equipment maker Caterpillar is the top faller, down 3%. The broader S&P 500 index is flat, around 4,431 points -- having tumbled around 7% this month. The tech-focused Nasdaq, which has borne the brunt of this month’s selling, has gained 0.7%, but is still down 11% for 2022 so far. The Baltic Exchange’s dry bulk sea freight index, which track shipping costs, is on track for its biggest monthly fall in two years. The Baltic Dry index, a measure of dry bulk material transport costs has dropped by around 36% in January, its fourth monthly fall in a row. Reuters says it’s down to seasonal weakness, and lower iron ore shipments from Australia which have weighed on vessel demand (perhaps as demand from China has softened). The index rose through much of 2021 until peaking in early October (when there was a rush to move goods in time for Christmas and Black Friday), and has dropped sharply since. Other measures of shipping costs are higher, though, highlighting that supply chain disruption has not ended. German inflation rate drops Inflation in Germany has slowed, but prices continue rise much faster than official targets, new figures show. Consumer prices in Germany were 4.9% higher than the previous year in January, down from 5.3% per year in December, but still more than double the European Central Bank’s goal of 2%. Energy prices remained sharply higher, up 20.5% year-on-year. But inflation was broader based, with goods prices 7.2% over the year and food 5% pricier, while services inflation was 3%. On a monthly basis, prices rose 0.4% in January, Destatis reports. Inflation was 5.1% per year on an EU-harmonised basis, down from 5.7%/year in December.