February 2023 Market Insights
The U.S. and Europe continues to deal with elevated inflation despite interest rates starting to impact employment numbers.
Written by Kevin Hua Co-founder & Chief Investment Officer
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What happened to the markets in February?
Developed markets were mixed as investors faced different economic signals from different economies. The U.S. and Europe continues to deal with elevated inflation despite interest rates starting to impact employment numbers.
Europe and Japan were positive markets, led by France’s CAC Index, up +2.62% and the European EUTOSTOXX 50 Index, up +1.80% (local prices).
Weakness came from Chinese and U.S. markets as Hong Kong markets saw a steep turnaround form recent rallies. The HSI and HSCEI Indices were down -9.41% and -11.36% respectively (local prices) while the U.S. Down Jones Index was down -4.19% (local price).
However, the weakening of the AUD by +4.85% against the USD helped AUD returns for the Trends and indices.
U.S. inflation remains elevated
U.S. economic data was subdued during the month. Despite, although wage growth remains solid, unemployment has ticked up as job cuts slowly beginning taking their toll.
Nonetheless, the U.S. Federal Reserve stressed the need to keep raising interest rates, with the potential for a higher peak than previously expected to potentially as high as 6%.
This was in part to U.S. inflation remaining elevated with consumer prices rising 0.5% in January, the most in three months, and the annual inflation rate at 6.4%.
Inflation and interest rate rises in Europe continue
Inflation in France and Spain remain high (7.2% in France and 6.1% in Spain) and are reflective of European inflation. Investors are now expecting the European Central Bank to raise interest rates to 4% with a 0.5% rise during the month.
Meanwhile, the Bank of England delivered its tenth consecutive interest-rate increase with a 0.50% rise as inflation remains persistent.
Reversal of China sentiment
Investors turned sour on Chinese markets as they received mixed regulatory messages from the Central government as it refocused on geopolitics, whilst investors want the focus to remain on economic recovery and deregulation.
In Japan, Kazuo Ueda was picked as the new Governor of the Bank of Japan, renewing speculation that tighter monetary policy was imminent.