The Market Review: 23 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.

It was a mixed week for markets, as investors weighed up recession worries against falling inflation. The FTSE fell just over 1% for the week. The S&P posted a positive return, with technology stocks leading the way. Government bonds enjoyed a good week, while high yield lagged slightly. Oil and gold were both positive for the week, up 2% and 0.4%.

News.

US retail sales decreased by -1.1% month-on-month in December 2022. Similarly, UK retail sales fell by 1%. This sparked growth concerns and recession fears. Entering the peak of earnings season, analysts have been reducing their forecasts for the first half of 2023. For the fourth quarter, analysts expected a decline of around 4.6% in company earnings.

Geopolitics.

China’s population fell in 2022 for the first time since 1967, declining by 850k to 1.4 billion, with last year’s birth rate at the lowest since records began. It is anticipated that this decline may have wider implications on global economies, as the country represents an important source of labour and demand. India is now the most populous country in the world.

Inflation.

The UK annual inflation rate decreased to 10.5% in December 2022, down from 10.7% in November and marking the second consecutive decline. Easing petrol prices helped push inflation lower. The Eurozone annual inflation rate decreased to 9.2% year-on-year in December 2022, down from 10.1% in November and the all-time high of 10.6% in October.

Central Banks.

Despite inflation hitting 4% in Japan last week, Japan’s central bank maintained ultra-low interest rates, including its 0.5% cap for the yield of its 10-year bond. The Bank of Japan’s decision defied market expectations, and the Japanese stock index rose 2.5% following last Wednesday’s decision.

Commodities.

Oil finished the week at $81 per barrel, on track for a second consecutive weekly gain, supported by an improving demand outlook and persistent supply worries. The International Energy Agency said that global oil consumption would reach a record daily average this year, as top crude importer China opened its economy.

ESG.

Rolls Royce announced that its Power Systems business unit has completed a successful test of its mtu Series 4000 L64 engine running on 100% hydrogen fuel. The test marks an important step towards meeting customer demands for more sustainable energy through the commercial introduction of hydrogen solutions. In November, the company, along with airline EasyJet, conducted the first-ever run of an aircraft engine powered by hydrogen.

Week Ahead.

The US releases will include the Q4 GDP growth rate. The US economy has likely grown an annualised 2.8% in the final quarter of 2022. US earnings season will kick into a higher gear, as several big tech names report their quarterly results, including Microsoft, IBM, Tesla, and Intel. Also, flash PMI data for January will be published for the US, UK, Japan, and Euro area countries. In Japan, investors await minutes from the Bank of Japan’s latest monetary policy meeting.

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.

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