Global Market Commentary February 2023

U.S.:

The S&P 500 ended the week up 1.9%, stemming the losses seen in the previous three weeks. The materials sector saw the biggest gains followed by communication services. In contrast, consumer staples was the only sector to record losses. In economic news, a preliminary reading showed durable goods orders fell 4.5% in January, worse than expectations of a 4.0% decline. Elsewhere, the Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) was 47.7 for February, up from 47.4, and versus expectations of 48.0 (see chart). However, the S&P global manufacturing PMI for February was revised lower to 47.3 from 47.8. Meanwhile initial jobless claims for the week ending 25 th February totalled 190,000 while market expectations were for 195,000. Continental

Europe:

The MSCI Europe ex UK Index rose by 1.7%. In economic news, eurozone inflation eased in February to 8.5% from 8.6%, but was higher than market expectations of 8.2% preliminary figures showed. Meanwhile, core inflation rose for a third consecutive month to 5.6% YoY from the previous month’s reading and expectations of 5.3%. The economic sentiment indicator for February inched lower to 99.7, worse than market forecasts of 101 and slightly below the previous month’s reading of 99.8. The region’s unemployment for January remained unchanged at 6.7%, slightly above market estimates of 6.6%. Germany’s inflation was unchanged in February at 8.7% YoY versus expectations of 8.5%, according to preliminary estimates. Consumer prices rose 0.8% MoM, more than expectations of 0.6%. Germany’s manufacturing PMI for February was revised lower to 46.3 from an earlier estimate of 46.5. Policymakers at the European Central Bank (ECB) signalled the likelihood of a further 50- basis point (bps) increase in interest rates at the next ratesetting meeting on 16th March. Although energy prices have plummeted, this has been offset by significant increases in the cost of food, goods and services.

UK:

The FTSE 100 index ended the week up 0.9%. In economic news, house prices suffered the biggest fall in more than a decade, registering a 1.1% decline YoY in February (-0.5% MoM), according to a survey by Nationwide. Meanwhile, the manufacturing PMI for February was revised slightly higher to 49.3 from a flash estimate of 49.2. The services PMI was also revised, to 53.5 from 53.3 and the composite was raised slightly from 53.0 to 53.1. Meanwhile, Andrew Bailey, Governor of the Bank of England, stated that the bank does not presume that interest rates need to be increased from the current 4% and that it would be wrong to assume interest rates will rise further.

Japan:

Japan’s share market made good gains over the week, with the TOPIX closing the period up 1.6%. Contributing to the advance was a series of mostly encouraging economic data, including a surprise dip in January’s unemployment rate andupward revisions to the latest index of coincident economic indicators and the au Jibun Bank Japan Composite PMI. Partly offsetting these data points was a decline in February’s manufacturing activity. Meanwhile, Bank of Japan governor nominee Kazuo Ueda said stimulus should continue in support of the country’s economic recovery, implying that he won’t seek immediate change to the central bank’s current monetary policy if his nomination is approved. Asia Pacific: Asian share markets were higher for the week, with the MSCI Asia Pacific ex Japan Index closing the period up 1.5%. Stocks benefited in part from better-than-expected Chinese manufacturing and services activity in February as well as a positive lead from US markets. Limiting the advance were lingering question marks surrounding the future of US interest rates. Share markets rose in Hong Kong, China, Taiwan and South Korea but fell in Thailand and Indonesia. In Australia, the All Ordinaries Index fell 0.4% as underperformance from the ‘Big Four’ banks overshadowed good gains across the major miners. It was the Australian share market’s fourth straight week of declines.

Emerging Markets (EM):

The MSCI Emerging Markets index ended in positive territory after four consecutive weeks of losses, ending the week up 1.7%. In China, equities rose for a second week ahead of the National People’s Congress meeting. Newly released data showing strong manufacturing activity and service sector growth boosted optimism about the economy’s recovery following the prolonged pandemic restrictions. According to government figures the official manufacturing sector PMI was 52.6 in February, up from January’s 50.1, higher than expectations of 50.7 (see chart). In Brazil, GDP growth slowed in the fourth quarter to 1.9%, lower than market expectations of 2.2%.

Fixed Income:

The Bloomberg Global Aggregate index was flat over the week. The yield on 10-year US Treasury bonds ended the week slightly up, 1 bp, at 3.95%. During the week, yields on 10-year and 30-year Treasuries broke through 4.00% for the first time since November following data showing the persistence of high inflation. Yields on European bonds also rose amid concerns about further policy tightening by the ECB. The German 10-year bund yield rose 18 bps to 2.72%. In the UK, the benchmark 10-year gilt yield increased 19 bps to 3.85%. Investment grade corporate bonds fell, impacted by rising Treasury yields and a high level of new issuance. The Bloomberg Global Credit index was down 0.1% while the Bloomberg Global High Yield index was up 0.4%.

Commodities:

Commodity prices strengthened in contrast to the previous week. Oil prices rose 4.4%. Gold prices were up 2.5%. Copper reversed the previous week’s weakness, ending the week 3.1% higher.

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