UK inflation rose unexpectedly - US stocks continue to out-perform

US stock indices were higher last week, apart from the Russell 2000 Small-Cap index. The US technology sector out-performed.

Member of the Federal Reserve Board of Governors, Christopher Waller, set risk assets back earlier in the week with his comments on interest rates.. "with economic activity and labor markets in good shape and inflation coming down gradually to 2 percent, I see no reason to move as quickly or cut as rapidly as in the past".

As a result, the US dollar and the 10yr Treasury yield rose and investors adjusted their timing projections for rate cuts this year. The probability of a Fed rate cut in March has fallen this month from above 70% to almost 50%. Strong economic data also played into this. US Retail Sales rose more than expected, 0.6% month-on-month in December, the biggest increase in three months - and US initial jobless claims fell less than expected. Even so, the S&P 500 managed to shrug off the negative sentiment by the end of the week and closed at a new high.

In the UK, inflation rose unexpectedly to 4% from 3.9%. This was the first increase in ten months. The yield on the 10yr Gilt rose to its highest level in over a month.

Coming up this week are important earnings reports from major US companies including Tesla, Microsoft, Netflix and Intel.