VIEW: Markets saw a February reality check after wrong-footing investors with the big January rally. Sticky US inflation and resilient economies pushed back peak Fed expectations and raised bond yields. Global stocks fell 3%, led by China and rate sensitive real estate. The dollar rallied, bitcoin held onto its big YTD gains, and Europe’s stocks bucked the pullback. This tightening of financial conditions may have more to go with inflation expectations becoming unanchored. This keeps us short term cautious, and focused on defensives from healthcare to high dividend. But we believe October was the low and out-of-position investors will buy any meaningful weakness.
FEBRUARY: Fed slowed to a 0.25% hiking pace and inflation fell for 7th month. But underlying price and jobs data was stickier than hoped. Markets repriced to three more 0.25% hikes and a July peak. Higher bond yields and dollar capped stock valuations. Natgas’s plunge and China’ reopening boosted the PMI recovery further. Q4 earnings were better than feared, with S&P 500 profits -3% whilst they rose 13% in Europe. Incoming BoJ governor Ueda cooled dovish hopes. Geopolitical tensions were stoked by Chinese balloons, and the Ukraine invasion anniversary.
MARCH: End of Q1 sees the latest US jobs (March 10) and inflation report (14th), after recent upside surprises. This comes over a week before the FOMC meeting (22nd), with chances of a 50bps hike now an uncomfortable 30%. China’s ‘two sessions’ (March 4th) meeting may see a redoubling of the growth agenda that is a key insurance against global recession. G20 foreign ministers meet (2nd) for the first time under India’s presidency, whilst Black Sea Grain Initiative deadline (19th) will be an ag market focus. Kuroda will oversee his last BoJ meeting (10th).
All data, figures & charts are valid as of 28/02/2023