Global Markets Update Monday, 27 February 2023

Shares and bonds sold off after US inflation data was stronger than expected.

Speculation that the US central bank would reduce interest rates later this year has now pivoted to predictions that US rates will rise to 5.4% by July, with at most a single cut by the end of the year.


The FTSE 100 lost 1.6% over the week.

The UK and EU appeared to be nearing agreement on revising post-Brexit trading agreements for Northern Ireland.

The S&P Global/Cips UK composite purchasing managers’ index rose to an eight-month high of 53 in February. Manufacturing activity rose to a seven-month high of 49.2 compared to 47 in January, while services activity surged to an eight-month high of to 53.3 from 48.7 in January.

The GfK UK Consumer Confidence index increased to -38 in February, the highest reading since April 2022.

Rolls-Royce shares jumped by almost a quarter after beating earnings forecasts.


The S&P 500 fell 2.2% over the week while the Nasdaq lost 2.6%.

Minutes of the latest FOMC meeting showed that almost all officials backed its decision to raise its benchmark interest rate by a quarter of a percentage point, but several preferred a half-point increase. All officials indicated that rates were expected to continue to rise.

S&P Global’s US composite purchasing managers’ index rose to an eight-month high of 50.2 in February. The reading was the highest in eight months. Services activity increased slightly offsetting, while the decline in manufacturing activity also slowed.

The core PCE index, the Federal Reserve’s preferred measure of inflation, rose to 4.7% year on year in January, well above expectations of 4.3% and suggesting that US rates would need to be higher for longer to bring inflation back to target.

Fourth-quarter US GDP growth was revised down to an annualized expansion of 2.7% from an initial estimate of 2.9%.

Nvidia surged after its fourth-quarter results beat analysts’ expectations and the company signalled its intentions to push further into the artificial intelligence sector.


The Eurofirst 300 declined 1.8% over the week.

Financial markets are now expecting eurozone interest rates to reach 3.75% by September, compared to a current rate of 2.5%. Joachim Nagel, president of the Bundesbank and a member of the ECB’s governing council, said inflation was likely to “remain at very high levels”, requiring “significant interest rate hikes beyond March”.

S&P Global’s flash eurozone composite purchasing managers’ index rose to 52.3 in February from 50.3 in January. Services activity rose to an eight-month high of 53.0 in February, up from 50.8 in the previous month, but manufacturing activity deteriorated, falling to 48.5 in February from 48.8 in January.

The eurozone inflation rate was revised slightly higher to 8.6% year-on-year in January, up from a preliminary estimate of 8.5%.

Germany’s GDP fell 0.4% over the fourth quarter of 2022, driven by sharp declines in consumer spending and investment in buildings and machinery. The final figure marks a notable decline from an initial estimate of flat growth between October and December.

The ZEW German economic sentiment indicator rose to a 12-month high of 28.1 in February.

The Ifo indicator of German business sentiment rose to an eight-month high of 91.1 in February, from a downwardly revised 90.1 in January.


The Nikkei 225 slid 0.2% over the week.

Kazuo Ueda, the Bank of Japan’s new governor, said the central bank should be “creative” with its monetary policy and pursue interest rate normalisation if it appears able to sustain its 2% target.

Pacific Basin

Australia has proposed introducing laws giving it the right to limit exports in response to rising concerns about domestic supply.

Emerging Markets

The MSCI EM Index fell 2.4% in USD terms over the week.

Turkey cut interest rates by 50 bps to 8.5% in a bid to support economic growth after the devastating earthquake.

South Africa plans to significantly increase public borrowing so that it can help electricity monopoly Eskom to spend more money on maintaining power stations and so avoid the blackouts that have plagued the country.


The yield on the two-year US Treasury note rose 14 bps over the week to a three-month high of 4.79%, while the 10-year US Treasury yield closed the week at 3.96%, having broken through 4.0% mid-week, its highest level since early November and an increase of 6 bps over the week.

The yield on the 10-year German Bund rose 10 bps to 2.54%, its highest point since the eurozone debt crisis in the summer of 2011.

The yield on the UK’s 10-year Gilt rose 14 bps to 3.65%, its highest level since the start of the year, as stronger-than-expected economic data boosted hopes the UK may avoid a long recession but also raised fears that the Bank of England may keep rates higher for longer.