Markets were volatile last week, driven largely by higher-than-expected inflation data in the US. The core CPI print came in above forecasts, sending stocks down 2-3% early in the week, led by the tech-heavy Nasdaq. Markets recovered over the next few days before falling again on higher producer price inflation figures on Friday.

Interest rate-sensitive sectors like tech were most impacted, but surprisingly emerging markets, global small caps, and the UK were the week's best performers, despite the UK announcing a technical recession. Meanwhile, Japan also technically entered recession territory but the market  rose another 4% on top of double digit gains this year due to strong corporate export earnings. GDP is a backwards looking indicator while markets look resolutely forwards, signalling a potential positive outlook for 2024.

In commodities, oil prices were similarly whipsawed between supply concerns and demand worries. And in FX, the USD and global yields saw spikes midweek only to pull back as the likelihood of near-term rate cuts faded.  

The US earnings season is largely complete, showing polarised results – flat top-line growth but earnings beats for big tech and consumer discretionary companies, while materials and energy have been in a deep earnings recession. Overall though the numbers were slightly better than had been expected at the beginning of the year which has buoyed markers. This "better than expected" theme may carry over into Australian reporting season this week, where expectations have already been marked down substantially over the past two years.

With major write-downs in recent years, there may be room for positive surprises from mid and small cap companies that have already experienced their earnings recession. Banks and materials sector results will be more mixed. Volatility is likely to continue in the coming weeks as the markets gauge whether inflation threatens to derail the disinflation narrative.

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