Global Markets Update Monday, 6 February 2023

Major central banks raised rates, but global stocks rallied as investors bet that interest rates were near their peak.

The IMF lifted its forecasts for global growth, saying it now expected the global economy to grow 3.2% in 2023.

The FTSE 100 advanced 1.8% over the week, reaching an all-time high.

The Bank of England raised rates by 50 basis points (bps) to a 15-year high of 4.0%. However, it dropped previous guidance that it would continue to act “forcefully” to curb inflation and forecast the UK recession would be shallower than it previously expected. Governor Andrew

Bailey suggested that we may have reached the peak in rates, although the market still expects one more 25bps increase.

The IMF predicted that the UK would be the only major economy to slide into a recession in 2023.

Shell announced a record annual profit for 2022 of almost $40bn.

The S&P 500 rose 2.2% over the week, while the tech-heavy Nasdaq jumped 4.7%. The S&P has now rallied by 8% since the start of the year while the Nasdaq is up 16%.

The Federal Reserve (Fed) raised rates by 25bps to a range of 4.5-4.75%, the highest level since September 2007. This was the Fed’s smallest rate hike since March 2022. While the Fed warned that “ongoing increases” would be needed to bring inflation under control, investors were cheered when Fed chair Jay Powell said the “disinflationary process” in the US economy was under way.

The US economy added 517,000 jobs in January, almost three times as many as expected, while data for 2022 was also revised higher. The unemployment rate sunk to a 53-year low of 3.4%.

Average hourly earnings rose at an annual rate of 4.4% in January, the slowest pace of increase since August 2021.

The ISM manufacturing purchasing managers’ index fell to a lower-than-expected 47.4 in January, the lowest since May 2020 at the height of the pandemic. However, the ISM non-manufacturing PMI jumped to a far stronger-than-expected 55.2 in January from 49.2 in December.

Caterpillar missed profit estimates in its fourth-quarter earnings and warned on softer demand from China.

Apple posted its first decline in revenues in more than three years as iPhone sales were hit by Covid supply chain disruptions in China.

Meta surged nearly 20% after reporting a stronger-than-expected fourth revenue and announcing a $40 billion stock buyback.

The FTSEurofirst 300 gained 1.1% over the week.

The European Central Bank (ECB) raised rates by 50bps to 2.5%, with ECB president Christine Lagarde vowing to “stay the course” in the fight against inflation although she also stressed that future rate decisions would be dependent on upcoming economic data. Eurozone rates are expected to peak at 3.25%% in the summer.

Eurozone inflation fell to an eight-month low of 8.5% in January.

The eurozone economy grew 0.1% in the final quarter of 2022, raising hopes that the region will avoid a deep recession. Expansions in France and Spain outweighed contractions in Germany and Italy.

Eurozone producer price inflation eased further to 24.6% year on year in December, the lowest since November 2021, but coming in well above market expectations of 22.5%.

The Nikkei 225 rose 0.5% over the week.

Pacific Basin
China’s official NBS manufacturing PMI unexpectedly increased to 50.1 in January from 47.0 in December, marking the first expansion in the sector since September last year. The official NBS non-manufacturing PMI increased sharply to 54.4 in January from 41.6 the previous month. This was the first expansion in the service sector in `four months and the strongest growth since June 2022.

The Caixin China General manufacturing PMI edged up to 49.2 in January from December’s three-month low of 49.0. The Caixin China services PMI increased to 52.9 in January from 48.0 in December, marking the first growth in the service sector since last August.

Hong Kong’s economy contracted by 4.2% year on year in the fourth quarter of 2022.

Emerging Markets
The MSCI EM Index slid 0.7% over the week in USD terms.

The yield on the 10-year US Treasury bond closed the week down 1bps at 3.52%.

The yield on the 10-year German Bund closed the week down 5bps at 2.19%.

The yield on the 10-year UK Gilt closed the week down 27bps at 3.05%.