Market Pulse - January 2023

Key themes

  • Both equities and bonds enjoyed a strong start to the year, boosted by rising hopes of an economic ‘soft landing’, whereby inflation continues to decline while recession is avoided.
  • The global growth outlook improved, spurred by China’s economic reopening and the continued recovery of European sentiment and economic activity – the eurozone appears to have avoided a recession, with modestly positive growth recorded in the fourth quarter.
  • Central banks are likely to pause interest rate rises later this year, though they are still planning some further increases and pushing back against investors’ expectations of rate cuts in the second half.

Markets snapshot

  • The MSCI AC World equity index rose 6.5% (5.3% in euros) over January.
  • European equities outperformed, rising 7.9% (7.5% in euros) as the growth outlook improved amid falling gas prices, rising sentiment and activity levels, and China’s reopening.
  • Emerging market (EM) equities rose 6.6% (6.0% in euros) as growth forecasts for China were revised higher on the back of the full reopening of the economy and ongoing support measures for the property sector.
  • The UK lagged, rising 4.1% (4.7% in euros). Increasing wage pressures in a tight labour market suggested further policy tightening is required.
  • Japan also lagged, rising 4.7% (4.4% in euros) as the yen strengthened on the back of tighter policy and higher bond yields.
  • The Eurozone >5 year bond index rose 3.0%. Having reached an 11-year high at year-end, the German 10-year yield fell to 2.29% as eurozone inflation fell to 9.2% y/y.
  • The euro rose 1.5% against the dollar to end the month at 1.0865.
  • Commodities were marginally lower by -0.1% (-1.8% in euros). Brent oil was volatile, ending the month down -1.7%, having fallen by -9.4% at its lowest point. European gas prices fell -21.4% on the back of warmer weather and higher-than-expected storage levels across Europe.
  • Metals were firmer on an expected recovery in Chinese growth, with aluminium up 11.2% and copper 10.2%. Gold rose 5.8%, boosted by a weaker US dollar and lower US real yields.



Market Pulse

Market Pulse - February 2023

Each month, Lenny McLoughlin, Chief Investment Strategist sifts through market noise to pinpoint the key themes that have influenced markets – and impacted your investments. Lenny also shares his insights on the forces shaping markets in the short-to-medium term.

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