Market Commentary 13th February 2023 from Will Binks

Posted by melaniebond

Market Commentary 13^th February 2023

Equity Indices

The UK’s FTSE 100 index declined by 0.24% across the week, whilst the mid-cap FTSE 250 saw a steeper fall of 2.74%.

Data on UK Gross Domestic Product (GDP) showed that the UK economy shrank 0.5% in December. The extra bank holiday in September and increased spending for the world cup meant that the final quarter saw the economy stagnate, saving the UK from entering a technical recession.

A purchasing managers’ index measuring activity in the construction sector signalled the sharpest decline since May 2020. Purchasing activity also saw it’s steepest contraction since May 2020, whilst input cost inflation slowed the most in 12 months due to reduced demand for materials.

Europe

Major European equity indices moved lower across the week. The broad FTSE All World Index – Europe ex UK declined by 2.73%. Germany’s DAX index fell by 1.09%, France’s CAC 40 moved 1.44% lower and the Italian FTSE MIB lost 0.17%.

Preliminary data on Germany’s Consumer Price Index (CPI) showed the headline rate of inflation moved higher to 8.70%, below the predicted 8.90%. Germany recently introduced a monthly payment to cover gas and heating for all households as well as small to medium businesses.

Data released on retail sales within the Euro Area showed a decline of 2.70% from November to December, the biggest decline since April 2021. Food, drinks and tobacco saw the biggest decline in sales of 2.90%, suggesting that rising prices and interest rates are taking their toll on consumer spending.

The major US equity indices posted declines last week, with the S&P 500 falling by 1.11%, the NASDAQ 100 losing 2.13% and the Dow Jones Industrial Average faring better, losing a smaller 0.17%.

The amount of American citizens submitting claims for unemployment rose from 183,000 to 196,000, higher than market expectations. Despite this, the labour market still remains tight enough that the Federal Reserve expect it could contribute to further inflationary pressures.

US Inflation is expected to slow to 6.2% in January from 6.5% the previous month, which would be the smallest decrease since September. This has led to further hawkish comments from policy makers. Michelle Bowman, a senior Federal Reserve official said she expected “ongoing increases” in US rates.

Asia

Asian stock markets have also followed global downward trends with the exception of Japan. The broad FTSE All World Index – Asia Pacific declined by 1.09% across the week, whilst China’s Shanghai Composite Index moved 0.08% lower. The Japanese Nikkei 225 increased by 0.59%.

Official data showed the Chinese Consumer Price Index (CPI) rose by 2.1% year-on-year during December, which was broadly in line with expectations. Core inflation, which strips out food and energy prices, came in at a lower 1.0%. Tensions have been rising between China and the US as Chinese balloons are found flying over the US. The US released a statement saying the balloons were not weather tracking devices, as China claimed.

Japan’s Producer Price Index (PPI) data came in lower than expected in January, with prices rising an annual rate of 9.5%. PPI measures the wholesale cost of goods sold by manufacturing businesses. Japan is current seeing its highest bout of inflation since 1991 and is expected to nominate a new central bank governor this month.

Bond Yields

The 10-Year Gilt yield increased from 3.05% to 3.39% across the week. Increased interest rates around the globe and in the UK appear to have moved gilt yields upwards. Better than anticipated GDP figures within the UK have also added towards inflationary pressures.

Europe

The 10-Year German Bund yield moved higher from 2.19% to 2.36% across the week amidst continued hawkish rhetoric from the European Central Bank and its key members.

Investors anticipate the Federal Reserve raising the headline interest rate up to 5% at their next policy meeting to prevent inflation from becoming entrenched at the current level. The 10-Year Treasury yield moved from 3.53% up to 3.74%.

Currency

GBP / USD – Current 1.2047 Previous 1.2056

GBP / EUR – Current 1.1290 Previous 1.1165

The Pound declined marginally by 0.07% against the US Dollar last week, its weakest level since early January as the Dollar strengthened. Against the Euro, the pound gained 1.12% as the Euro has continued to weaken in recent weeks.

Commodities

Gold

Gold has continued on its downward trend, with the spot price falling 0.46% across the week to $1,856.26. Pressure has risen against gold amidst the recent rate rise, as well as the further anticipated increases.

Oil

The Brent Crude spot price made back all of its previous week’s losses, gaining 8.23% across the week to close at $86.52 per barrel. Russia announced its intention to cut oil output by 500,000 barrels a day in March, whilst Saudi Arabia raised prices for Asian buyers.