Insight

Monthly Market Roundup cov. February 2023

Monthly Market Roundup
Key takeaways
1

European Central Bank and UK’s Bank of England raised interest rates by 0.5%, while the US Federal Reserve increased by 0.25%.

2

China’s faster-than-expected Covid reopening progress, plus hopes that the current interest rate hike cycle could soon come to an end improved investor sentiment.

3

Bond markets had a challenging month, as markets now expect the US Federal Reserve to keep interest rates higher for longer. 

Summary

February was a month of mixed fortunes for global equity markets. Continuing from the strong start to 2023, markets in the UK and Europe enjoyed a postive month thanks largely to improved company earnings.

Elsewhere, the US struggled as inflation looks to be more persistent than thought, and the surprising strength of the economy. There was a knock-on effect in Asia as US interest rates look like they’ll be higher for longer. In a reversal of trend, emerging markets underperformed developed markets last month.

European markets ended February up, thanks to an improved outlook off the back of updated guidance from companies. Commications services performed best, while real estate lagged.

 

The European Central Bank (ECB) raised interest rates by a further 0.5%, to hit the highest level since 2008. Consumer prices in France and Spain rose slightly in February, fuelling the ECB’s commitment to its planned programme of interest rate rises.

 

In politics, the EU agreed a new deal on Northern Ireland trading rules. European Commission president Ursula Von der Leyen praised the constructive attitude of both parties. The UK parliament is set to vote on the deal soon.

There was a similar picture in the UK, as markets there also ended the month up. This was largely down to higher company earnings and signs of slowing inflation.

 

Inflation fell to its lowest level in five months, measuring 10.1% in January. Falling petrol prices were a large contributor. Depsite this trend, the Bank of England continued its raft of interest rates rises, hiking by a further 0.5% last month.

 

UK gross domestic product (GDP) stayed the same between the third and fourth quarters of 2022. The country avoided a technical recession after shrinking in the three months to September. UK retail sales also grew between December and January, following dropping the previous month.

The picture was less positive in the US as equity markets lost ground there. All three major indices were down, though the technology-laden NASDAQ was the most resilient.

 

The US Federal Reserve (Fed) raised interest rates by another 0.25%. This was largely in line with expectations. Fed Chair Jerome Powell warned though that ‘disinflation’ still has a way to go. Further interest rate rises are likely if macroeconomic data continues to trend up.

 

The information technology sector led the way in February, spurred by Nvidia, who beat its quarter four expectations and has strong performance indicators for this quarter. Healthcare and communications were the biggest detractors.

Asian Pacific equities fell, hit by expectations interest rates in the US will stay higher for longer. China was the worst performing market as tensions with the US heightened over ongoing disagreements on the Russian-Ukraine conflict. 

 

Taiwanese equities recorded small losses but outperformed its regional indices. Sentiment in the technology sector was dampened following worse-than-expected earnings. In Korea, foreign investment declined over government plans to regulate banking and telecommunication companies.

 

In India, December’s quarterly GDP growth came in lower-than-expected at 4.4%. However, January’s consumer price index (CPI) data jumped up to 6.5%, while November’s industrial production figures showed signs of improvement.

Emerging market equities underperformed developed markets in February. Markets contracted as US-China tensions re-escalated, the broad dollar index rallied and hopes of the US Federal Reserve (Fed) cutting interest rates fell.

 

Asia was the worst performing region, followed by Latin America and Europe, Middle East & Africa (EMEA). Colombia, China and Thailand were the biggest laggards. On a positive note, the Czech Republic mounted the biggest rise, led by utilities, while Greece climbed higher as banks continued to benefit from rising interest rates.

 

Weaker commodity prices also hit emerging market equities. Industrial metals fell on concerns about weaker Chinese demand, dwindling cargo shipments and building inventory levels.

Bond markets had a challenging month over concerns about persistent inflation. Markets now expect central banks to hike interest rates, after January data showed strong US jobs figures, higher-than-expected US retail sales and robust US consumer price index (CPI) numbers. 

 

In the euro area, inflation rose to a new record high of 5.3% in January increasing expectations the European Central Bank will raise rates aggressively. The UK had better inflation news, with the CPI falling for the third consecutive month but remaining in double digits at 10.1%. 

 

Credit markets also had a challenging month. The more interest-rate sensitive investment grade (IG) bonds underperformed their high yield (HY) peers. Barclays data showed corporate issuance of euro/sterling high grade corporate bonds returned to more normal levels in February after a near-record breaking month in January. 

Read the full roundup below

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    Monthly Market Roundup cov. February 2023

    By Invesco

    In the monthly market roundup for February, Invesco experts review what was a month of mixed fortunes for global stock markets, as well as the biggest economic factors that had an impact.

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