Global Markets Update Monday, 20 February 2023

Stronger-than-expected US economic data raised concerns that the Federal Reserve may accelerate the rate at which it raises rates at its next meeting.


The FTSE 100 rallied 1.5% over the week, breaching the 8,000 level for the first time.

Nicola Sturgeon resigned as SNP leader, seen as a blow for supporters of Scottish independence.

The UK government reportedly made progress in talks with EU on Northern Ireland protocol, although it faces a backlash from Eurosceptic factions of the Conservative Party and needs to win over the Ulster Unionists.

UK inflation slowed to an annual rate of 10.1% in January, a five-month low and a lower rate than had been expected. Services inflation, in particular, fell more than expected, including a slowdown in price growth in labour-intensive industries, such as hotels and restaurants. Core inflation fell to 5.8%, well below expectations of 6.2%. The data increases the chance that the Bank of England will pause its rate hiking stance.

UK retail sales unexpectedly rose 0.5% in January as holiday discounts boosted online sales and fuel prices continued to fall.


The S&P 500 slid 0.4% over the week while the Nasdaq rose 0.3%. US shares were undermined by strong US economic data that stoked fears that the Federal Reserve would need to keep rates higher for longer to combat inflation.

Loretta Mester, president of the Cleveland Fed, said she saw a “compelling case” for a half percentage point rise at the next FOMC meeting, and St Louis Fed president James Bullard also said he would not rule out an increase of the same size.

US consumer prices rose at an annual rate of 6.4% in January. While this was a slight slowdown from the previous month, it was more than the 6.2% increase expected. Core inflation was also slightly above expectations at 5.6%, down from 5.7% in December.

Retail sales rose 3.0% month on month in January, well above the 1.8% expected increase.

US producer prices rose at an annual rate of 6.0% in January, down from 6.2% in December but well above the consensus estimate of 5.4%.


The FTSEurofirst 300 rose 1.6% over the week.

European Central Bank President Christine Lagarde stressed the need for more interest rate rises, although some policymakers are urging the central bank to shift to smaller rate rises or risk stamping-out growth.


The Nikkei 225 eased 0.6% over the week.

Kazuo Ueda was appointed governor of the Bank of Japan.

Japan’s economy expanded 0.6% on an annualised basis in the fourth quarter, helped by the removing of strict border controls and accelerating government spending.

Emerging Markets

The MSCI EM Index fell 1.3% in USD terms over the week.

Turkish stocks surged almost 10% when the market reopened after a five-day closure following the devastating earthquake. A new rule requires public pension funds to hold more Turkish equities while several companies announced plans to purchase their own shares after a temporary loosening of taxes on corporate share buybacks.

The chief economist of the European Bank for Reconstruction and Development warned that steep price rises and weak growth are set to endure for longer than many expect in central and eastern Europe. She also said it was unclear how long governments in central and eastern Europe could continue to protect ailing companies.


The yield on the 10-year US Treasury bond rose 13 bps over the week to close at 3.85%. The yield on the two-year Treasury note reached 4.63%, its highest point since November. The federal funds rate is now forecast to peak at 5.27% in July with only one interest rate cut during the remainder of the year.

The yield on the 10-year German Bund closed the week up 8 bps at 2.44%.

The yield on the 10-year UK Gilt closed the week 12 bps higher at 3.51%.


The US dollar has strengthened around 3% so far in February after signs of stubborn inflation and unexpectedly strong economic activity caused investors to increase their forecasts for US interest rates.


European natural gas prices fell to an 18-month low of below €50 per megawatt hour on growing confidence that European countries will avoid shortages this winter and next.