Please see below article received from Brooks Macdonald earlier this afternoon, which delivers a succinct global market update.
What has happened
Equities struggled yesterday as concerns over hawkish central bank commentary returned, with markets continuing to whipsaw between positivity and negativity. US technology stocks underperformed with Alphabet a standout after its new generative AI tool showed inaccuracies during a demonstration. European equities managed to eke out a small positive gain despite the poor sentiment within US equity markets yesterday.
Central bank speak
Starting off with the more hawkish commentary, President Williams of the NY Fed said that a terminal rate of between 5-5.25% was a reasonable view, effectively endorsing the run up in bond market expectations that we have seen over the last week. Williams referred to wage growth as a concern saying that ‘there’s definitely scenarios where inflation ends up being more persistent for various reasons.’ The overall tone yesterday was one of caution, which stressed, in the words of Governor Waller, ‘It might be a long fight, with interest rates higher for longer than some are currently expecting.’ President Kashkari said that he would need to see wage growth back to around 3% before the Fed could gain confidence over the disinflation narrative. As a consequence of these comments, bond yields rose and the market’s expectation for the US terminal rate also ticked up yet again.
ECB
Yesterday’s moves were not just confined to the US with ECB speakers taking a similarly hawkish line. ECB Vice President de Guindos said that ‘it might well be that financial markets are too optimistic with regard to inflation and our monetary policy response.’ The ECB’s Knot added to this, saying that if the current inflationary pressures persist, the ECB could continue to hike interest rates at 50bp increments into May. Later today we will see the release of the delayed German CPI numbers which will help investors decide whether January’s downside misses to European inflation were a blip or part of a trend.
What does Brooks Macdonald think
Both the ECB and Fed sounded more hawkish yesterday, but the bond market and equity market damage was done in the US given heightened expectations of a Fed pivot. The ECB sounded hawkish but this is very much what the bond market expects, with the European Central Bank seen as behind the curve versus the US and UK.
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||||||||||||||||||||
| TR | TR | TR | TR | |||||||||||||||||||||||||
| MSCI AC World GBP | -0.5% | 1.3% | 5.5% | 7.8% | ||||||||||||||||||||||||
| MSCI UK GBP | 0.3% | 1.7% | 2.2% | 5.6% | ||||||||||||||||||||||||
| MSCI USA GBP | -1.1% | 1.8% | 6.2% | 7.8% | ||||||||||||||||||||||||
| MSCI EMU GBP | -0.3% | 1.1% | 5.7% | 11.3% | ||||||||||||||||||||||||
| MSCI AC Asia Pacific ex Japan GBP | 0.6% | -0.1% | 4.4% | 8.0% | ||||||||||||||||||||||||
| MSCI Japan GBP | -0.2% | 0.9% | 6.8% | 5.9% | ||||||||||||||||||||||||
| MSCI Emerging Markets GBP | 0.5% | -0.4% | 3.3% | 6.9% | ||||||||||||||||||||||||
| Bloomberg Sterling Gilts GBP | -0.2% | 0.1% | 1.6% | 2.7% | ||||||||||||||||||||||||
| Bloomberg Sterling Corps GBP | -0.1% | 0.6% | 3.1% | 4.6% | ||||||||||||||||||||||||
| WTI Oil GBP | 1.7% | 4.5% | 6.4% | -2.1% | ||||||||||||||||||||||||
| Dollar per Sterling | 0.2% | -2.5% | -0.2% | -0.1% | ||||||||||||||||||||||||
| Euro per Sterling | 0.3% | 0.1% | -0.8% | -0.2% | ||||||||||||||||||||||||
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||||||||||||||||||||
| TR | TR | TR | TR | |||||||||||||||||||||||||
| MSCI AC World USD | -0.5% | -0.5% | 5.5% | 7.6% | ||||||||||||||||||||||||
| MSCI UK USD | 0.3% | -0.1% | 2.2% | 5.5% | ||||||||||||||||||||||||
| MSCI USA USD | -1.1% | 0.0% | 6.2% | 7.7% | ||||||||||||||||||||||||
| MSCI EMU USD | -0.3% | -0.7% | 5.7% | 11.1% | ||||||||||||||||||||||||
| MSCI AC Asia Pacific ex Japan USD | 0.6% | -1.8% | 4.4% | 7.9% | ||||||||||||||||||||||||
| MSCI Japan USD | -0.2% | -0.9% | 6.8% | 5.8% | ||||||||||||||||||||||||
| MSCI Emerging Markets USD | 0.5% | -2.1% | 3.3% | 6.8% | ||||||||||||||||||||||||
| Bloomberg Sterling Gilts USD | 0.3% | -1.9% | 1.8% | 3.1% | ||||||||||||||||||||||||
| Bloomberg Sterling Corps USD | 0.5% | -1.5% | 3.4% | 5.0% | ||||||||||||||||||||||||
| WTI Oil USD | 1.7% | 2.7% | 6.4% | -2.2% | ||||||||||||||||||||||||
| Dollar per Sterling | 0.2% | -2.5% | -0.2% | -0.1% | ||||||||||||||||||||||||
| Euro per Sterling | 0.3% | 0.1% | -0.8% | -0.2% | ||||||||||||||||||||||||
| Bloomberg as at 09/02/2023. TR denotes Net Total Return | ||||||||||||||||||||||||||||
Please check in again with us shortly for further market updates and news.
Chloe
09/02/2023