The Market Review: 09 January 2023

Written by Nathan Sweeney – CleverMPS Portfolio Manager & Marlborough’s Deputy CIO – Multi Asset, the Market Review is packed with the most interesting and impactful events of the past week from the global financial markets. 

Market Recap.   

The equity and bond markets started the new year with a bang. The FTSE was up over 3%, and Europe almost 6%. High-yield bonds delivered over 2%. Inflation continued to trend in the right direction – downwards. Wage inflation is also falling, which decreases the risk of a wage inflation spiral. This increases the potential for a mild recession (if at all). 

News.   

Despite the risk of an economic recession, the US labour market remains a source of strength. Data released on Friday showed that 223,000 new jobs were added in December. Overall, the economy generated 4.5 million jobs in 2022 – the second-highest annual total on record. Hopes of a soft landing increased, as the report showed wage growth slowing, which should lower inflation. 

Geopolitics.    

Russian President Vladimir Putin announced a 36-hour ceasefire yesterday, in recognition of Orthodox Christmas. The proposal was rejected by Ukrainian President Volodymyr Zelenskyy, who argued this move was aimed at slowing Ukrainian troops’ advance in the Donbas region. Meanwhile, the US and Germany have agreed to supply Ukraine with additional armoured vehicles and air defence systems. 

Inflation.   

Eurozone annual inflation decreased to 9.2% in December 2022 (vs. 9.7% expected), marking the lowest reading in four months, mainly as a consequence of softening price pressures from energy. Meanwhile, costs continued to rise at a faster pace for industrial goods, food, alcohol, tobacco and services. Core inflation increased to 5.2%. 

Central Banks.   

US Federal Reserve December meeting minutes released last week stated that the Central Bank is still awaiting ‘more evidence’ of substantial easing in the inflationary pressures before judging that inflation is under control. You should interpret this to mean that central banks will not automatically cut interest rates if inflation falls. 

Commodities.   

Oil closed at $73 per barrel on Friday, down 8% for the week, as recession concerns resurfaced. Soaring Covid infections in China continued to darken the demand outlook for the top importer, despite reopening efforts by authorities. In addition, major consumer, India, expects its economic growth to slow in 2023, as pent-up demand from the pandemic recovery levels out. 

ESG.   

Tesla’s share price has fallen sharply over the last few months as competition increases in the electric car market. Several car makers announced developments in the electric vehicle space at the CES (consumer tech) conference in Las Vegas, adding pressure to the share price. For example, Mercedes-Benz unveiled plans to launch a global EV charging network, with a goal to reach more than 10,000 high-power chargers across markets including North America, Europe, and China. The company aims to have the full network in place by the end of the decade. 

Week Ahead.   

In the US, centre stage will be taken by the inflation rate report, Fed Chair Powell’s speech at a conference, and consumer sentiment data. Also, inflation reports will be released for China, India, Mexico, and Brazil. Finally, investors should pay attention to foreign trade data for China, Australia, the Euro area, and the UK, along with Q4 GDP growth figures for the UK, where the economy is expected to grow by 0.1%. 

Sources: Nathan Sweeney – CleverMPS Portfolio Manager & Marlborough’s Deputy CIO – Multi Asset, Marlborough’s Multi-Asset Investment team, T.Rowe Price, John Hancock, Morningstar, PIMCO, Trading Economics, and ESG Today.

Risk Warning: These are Nathan’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.

Regulatory Information: This is a general communication provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Marlborough or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine – together with their own professional advisers if appropriate – if any investment mentioned herein is believed to be suitable. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice.

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