What’s happened in markets?

FTSE All Share 1.47 1.95 8.85 7.48 7.41 5.09 5.38
Euro Stoxx 50 1.85 2.60 10.97 13.03 7.77 6.59 7.90
S&P 500 -0.20 2.38 3.80 6.48 -5.31 8.16 10.25
Japan Topix 0.25 4.69 1.49 5.31 5.93 8.24 5.24
MSCI Asia Pac. -2.13 -2.79 7.73 4.62 -15.60 0.14 0.17
MSCI Emerg. Mkts. -1.38 -2.67 6.59 4.59 -16.93 -0.73 -0.89
Jo’burg All Shares 0.36 -0.09 10.16 8.61 9.25 15.29 10.04
UK Gov’t Bonds -1.07 -1.96 -3.86 0.68 -19.15 -8.39 -2.78
US Gov’t Bonds -0.39 -1.53 0.98 0.60 -8.93 -3.10 0.46
Global Corp. Bonds 0.60 -1.25 2.48 1.77 -8.17 -2.78 1.25
Emerg. Mkt. Local -1.42 -2.28 6.66 1.86 -9.43 -4.12 -1.73
Figures in the respective local currencies as at the end of trading on 17/2/2023.

The previous week’s strong US jobs report was followed this week by a higher-than-expected signal of inflation. The headline producer price index (PPI) rose by 6% year on year, against a forecast 5.4%. This prompted a revision of expectations among investors, who now anticipate interest rates will remain higher for a longer period: a peak of 5.5% in September is widely predicted.

The UK registered a slight inflation dip, though at 10.1% the consumer price index (CPI) remains high.

The week marked the first anniversary of the Russian invasion of Ukraine, whose impact continues to dominate the global economy. Meanwhile, US-China tensions simmered over suggestions that China might supply weapons to Russia, as well as the ongoing issue of surveillance balloons. UK politics was dominated by the surprise resignation of Scottish First Minister, Nicola Sturgeon, and efforts by Prime Minister Rishi Sunak to strike a deal on post-Brexit trading rules for Northern Ireland.

In the corporate world, Coca-Cola and Pepsi both announced earnings that outstripped expectations. In each case price growth was the driver. However, Nestlé has not enjoyed the same success: its 2022 earnings fell short of expectations, despite price hikes of 8.2%. The company plans to raise prices further this year.

The coming week will bring updates from top commodity firms, including Rio Tinto and Anglo American; US retail giants Walmart and Home Depot; and two of China’s dominant businesses, Baidu and Alibaba.

The strong inflation data and the Federal Reserve’s shift back to more hawkish rhetoric led to an equities sell-off. IT performed best over 30 days (+7%), with energy the worst-performing sector (-3%). Developed markets (+3%) continued to outperform developing markets (-3%), while growth stocks (+3%) did better than value (+1%). Large and small capitalisation stocks each grew by 2%.

Fixed income yields benefited in this environment, with the 10-year rate up by nearly 47 base points over the past two weeks, at 3.8%.

The US Dollar appreciated slightly against most major currencies.

  Latest Consensus Forecast
UK GDP (QoQ) 0.0
UK PMI 48.5 48.7
UK CPI (YoY) 10.5 10.3
EU GDP (QoQ) 0.1 0.1
EU PMI 50.3 50.6
EU CPI (YoY) 9.2 8.6
US GDP (QoQ) 2.9 2.9
US PMI 55.2
US CPI (YoY) 6.5 6.2

What’s happened in portfolios?

Our positioning on equities remains focused on quality. The stock selections of Fundsmith and Nedgroup Global Equity have impressed, particularly in communications and healthcare. Both funds hold stocks in Meta, whose last earnings report exceeded expectations and which sees big opportunities in messaging and AI applications.

Fixed income has been more attractive, though the current environment is less supportive of credit. Our longer-duration funds within investment grade credit and government bonds have lagged short-dated ones.

Among real assets, UK-focused investment trusts performed well on the back of better-than-expected UK inflation indicators, and the prospect that the Bank of England might temper rate hikes as a result.

Alternative strategies remain valuable for diversification. This week Gore Street Energy Storage Fund has announced its purchase of a 200MW energy storage project in the US for $110m, which will bring its international capacity to 1,173MW.

What’s happening this week?

21 February • UK Purchasing Managers’ Index | 23 February • EU Consumer Price Index | 23 February • US Initial Jobless Claims