On the back of a dismal 2022, global markets have somewhat rallied during January 2023 on the back of a tapering of inflation expectations and sight of what the market perceives to be a landing area for the terminal interest rates.
US Stocks posted gains after the announcement of an above expectations, Gross Domestic Product (GDP) figure for Q4 of 2022. Showing that GDP in the US rose by 2.9% in the last quarter of 2022. Consensus among economists had been for a 2.6% increase. The higher-than-expected result was viewed by many as an indication of a more positive economic climate than had previously been forecast.
The gains seen in European stocks of late have resulted in positive sentiment from investors in the Eurozone, however the European Central Bank (ECB) has remained hawkish in its stance towards tackling inflation. ECB President Christine Lagarde has consistently left little room for doubt about the central bank’s commitment to raising rates and with the ECB set to announce an interest rate decision in the coming week, many investors are poised for a 0.5% rate increase.
Last week also saw the release of the Eurozone Purchasing Managers Index (PMI) for manufacturing and services activity. The figure came in at 50.2 in January, up from 49.3 in December and ahead of expectations of 49.8. This result represents moderate growth while the flash composite PMI for the UK dropped to 47.8 from 49.0 in December adding to investors doubts about recession risk. UK equities finished the week down -0.2% in euro terms. Indeed, coupled with the latest report from the IMF suggesting that the UK will be the only developed economy to enter recession in 2023,
Finally, equities in Japan had a stellar week returning 2.8% in euro terms. Much of the performance is seen as a result of the Japanese central bank’s commitment to maintain ultra-low rates. With inflation showing signs of tapering and economic indicators stronger than previously anticipated, there is a cautiously positive sentiment for equities markets currently and we continue to recommend a globally diversified portfolio of equities as part of any regular investment strategy.
Additionally, with rising interest rates driving the correction in bond prices and yields, in 2022, bonds now offer an attractive portfolio addition for investors for the foreseeable future.
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