Ark Review of the Month
Global stock markets had a strong start of the year. Last December’s inflation readings in the US and eurozone showed slowing trend, which strengthened the market hopes that central banks may end their hiking cycles soon. The relatively mild winter has also defused the energy crisis in Europe and the risk of a deep winter recession has reduced. Wholesale gas prices have fallen recently, and global supply chain disruption appears to have eased amid a slowing in global demand.
Developed market equities delivered an overall return of 6% in January, with the MSCI Europe ex-UK Index up 8.1%, the Japan TOPIX up 4.8%, and the US S&P 500 up 4.7%. The surprisingly quick end to the zero-Covid policy in China has raised expectations that the Chinese economy will experience a strong recovery in the first half of 2023, as well as its trading partners in the region. As a result, the MSCI Emerging Markets Index rose by 9.2% and MSCI Asia ex-Japan Index increased by 9.8%.
The prospect of less restrictive monetary policy and a weakening economy boosted demand for bonds and caused US Treasury yields to fall, with the UK Gilt prices rising by 3.0%, the US Treasury prices rising by 2.1% and German Bund prices rising by 1.9%. Global investment-grade corporate bond prices also rose by 3.7%.
As of 31 Jan 2023:
UK 10 Year Gilt Yield 3.34%
US 10 Year Treasury Yield 3.51%
Germany 10 Year Bund Yield 2.29%
In the UK, inflation eased to 10.5% year-on-year (yoy) in December from 10.7% yoy in November. The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 9.2% yoy, down from 9.3% in November. The largest downward contribution to the change came from transport (particularly motor fuels), clothing and footwear, with rising prices in restaurants and hotels, food and non-alcoholic beverages making the largest partially offsetting upward contributions.
However, because of UK’s high energy prices, rising mortgage costs and increased taxes, as well as persistent worker shortages, the International Monetary Fund (IMF) predicted the economy was likely to contract by 0.6% in 2023, expected to be the only country to shrink this year across all the advanced and emerging economies.
Recent UK macroeconomic data suggested underlying growth has been more resilient than previously thought, partly helped by an easing of energy prices, driving hopes for a milder-than-feared recession. The latest updates on monthly GDP for November revealed that the UK economy unexpectedly grew in November, expanding by 0.1%. The UK FTSE All-Share rose by 4.7% in January. The consumer discretionary and financials sectors were among the top gainers. Laggards included more defensive sectors such as consumer staples and healthcare.
The Bank’s Monetary Policy Committee raised the Bank’s base rate on 2 February for the tenth meeting in a row, taking it to 4.0%. But after the BoE’s meeting, market expectations of future rate increases dropped further. The average rate on two-year fixed deals has dropped to 5.43 per cent, from 5.77 per cent at the start of the year, according to finance website Moneyfacts. Since January, Lenders prompts cuts to attract borrowers. High street lenders such as NatWest, Nationwide, Virgin Money, etc., have all made rate cuts. According to Financial Times, traders anticipate the BoE will begin loosening monetary policy by the end of the year, which should be supportive for the housing market.
As always, our Investor Relations team would be more than happy to help you with any queries.
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