What’s happened in markets?
What’s happened in markets?
| KEY MARKET MOVEMENTS (% change) | |||||||
| 1WK | 1MO | 3MO | YTD | 1YR | 3YR | 5YR | |
| FTSE All Share | -1.41 | 1.55 | 5.40 | 5.96 | 10.83 | 5.84 | 5.14 |
| Euro Stoxx 50 | -2.24 | 0.76 | 6.12 | 10.49 | 13.15 | 7.72 | 7.32 |
| S&P 500 | -2.66 | -1.00 | -1.01 | 3.65 | -5.88 | 8.88 | 9.53 |
| Japan Topix | -0.18 | 0.79 | -1.32 | 5.12 | 9.94 | 8.45 | 4.92 |
| MSCI Asia Pac. | -2.67 | -6.44 | 5.13 | 1.82 | -12.40 | 0.88 | -0.67 |
| MSCI Emerg. Mkts. | -2.74 | -6.42 | 3.20 | 1.72 | -13.05 | -0.04 | -1.72 |
| Jo’burg All Shares | -2.94 | -3.85 | 5.47 | 5.41 | 8.73 | 16.40 | 9.54 |
| UK Gov’t Bonds | -1.03 | -3.36 | -5.88 | -0.36 | -19.97 | -9.19 | -3.09 |
| US Gov’t Bonds | -0.77 | -2.67 | -0.39 | -0.17 | -9.61 | -3.80 | 0.31 |
| Global Corp. Bonds | -0.81 | -2.44 | 0.39 | 0.94 | -8.32 | -3.26 | 1.08 |
| Emerg. Mkt. Local | -0.60 | -3.74 | 4.20 | 1.25 | -7.27 | -3.93 | -1.78 |
| Figures in the respective local currencies as at the end of trading on 24/2/2023. | |||||||
Purchasing managers’ index (PMI) results from around the globe came out broadly higher than expected with an increase in the services component making up for the slack in manufacturing. But in the current environment, strong economic data is bad news for interest rates as central banks are likely to keep them higher for longer.
In the US, markets suffered a further upset on Friday when the personal consumption expenditures (PCE) price index rose 0.6% in January and was up 4.7% year on year. The December figure was 4.6% and Wall Street had been expecting a decline to 4.4%. The PCE is the Federal Reserve’s (Fed) preferred measure of core inflation, excluding more volatile food and energy components, and suggests inflation could be stickier than anticipated.
In the euro area, inflation continued to slow to an annual rate of 8.6% in January, down from 9.2% in December. Economic data was better than expected with preliminary PMI readings showing an expansion in economic activity.
The UK PMI readings for February also revealed that business activity in both the manufacturing and services sectors showed a surprise return to growth.
Geopolitical instability ramped up last week as 24 February marked the one-year anniversary of the war in Ukraine. Russia announced it was unilaterally suspending its participation in the new START nuclear arms control treaty with the US. The treaty, signed in Prague in 2010, caps the number of strategic nuclear warheads that the US and Russia can deploy. North Korea also appeared to be baiting the US as it confirmed the test of an intercontinental ballistic missile (ICBM) over Japan and threatened to use the Pacific as a “firing range” if the US continued its discussions with South Korea.
In corporate news, the share price of Nvidia, a world leader in artificial intelligence computing, increased after the company reported higher revenue and net income than Wall Street expected for its fourth quarter.
The week of 20 February saw risk off sentiment lingering in markets as central bank rhetoric and economic indicators increased the expected peak in interest rates. The recent rally lost more steam as most benchmarks ended in negative territory. Developed market equites (-0.6%) remained ahead of emerging markets (-4.9%), while growth (-0.2%) continued to outperform value (-1.8%) over the short term. Information technology (+2.4%) and consumer discretionary (+0.2%) were the strongest sectors over the last 30 days, with materials (-4.9%) the worst. The more defensive sectors, healthcare (-2.6%), energy (-4.3%) and utilities (-4.8%) continued to lag.
Following a strong January, the fixed income market has been more challenging in February. Yields continued to rise with the high duration parts of the market falling in value most.
The US dollar appreciated slightly against most major currencies over the week.
| ECONOMICS | ||
| Latest |
Consensus Forecast |
|
| UK GDP (QoQ) | 0.0 | – |
| UK PMI | 53.0 | 53.0 |
| UK CPI (YoY) | 10.1 | – |
| EU GDP (QoQ) | 0.1 | – |
| EU PMI | 52.3 | 52.3 |
| EU CPI (YoY) | 8.6 | – |
| US GDP (QoQ) | 2.7 | – |
| US PMI | 55.2 | 54.5 |
| US CPI (YoY) | 6.4 | 5.9 |
What’s happened in portfolios?
Within equities, our focus on quality strategies has benefited from the outperformance of the more defensive, quality managers. They have performed well overall, particularly against the MSCI All Country World Index (ACWI).
In fixed income, the hawkish comments from Fed officials have pushed yields higher with our longer duration assets underperforming over the short term. However, as the lag effect of monetary policy tightening is reflected in slower growth, we should see better performance.
In our real assets holdings, Greencoat UK Wind announced impressive full year results with total return on the net asset value (NAV) up +31.3%, net cash generation of over £560 million and dividend cover at 3.1 times. The dividend was up by 13.4% year on year as it maintains an RPI-linked target.
Finally, within our alternative strategies, it has been encouraging to see a bounce back in both our private equity holdings, Princess Private Equity and Oakley Capital Investments, over recent weeks.
What’s happening this week?
28 February • US Consumer Confidence | 2 March • EU Inflation Rate | 3 March • UK S&P Global Services Purchasing Managers’ Index
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.
| ECONOMICS | ||
| Latest |
Consensus Forecast |
|
| UK GDP (QoQ) | 0.0 | – |
| UK PMI | 53.0 | 53.0 |
| UK CPI (YoY) | 10.1 | – |
| EU GDP (QoQ) | 0.1 | – |
| EU PMI | 52.3 | 52.3 |
| EU CPI (YoY) | 8.6 | – |
| US GDP (QoQ) | 2.7 | – |
| US PMI | 55.2 | 54.5 |
| US CPI (YoY) | 6.4 | 5.9 |
What’s happened in portfolios?
Within equities, our focus on quality strategies has benefited from the outperformance of the more defensive, quality managers. They have performed well overall, particularly against the MSCI All Country World Index (ACWI).
In fixed income, the hawkish comments from Fed officials have pushed yields higher with our longer duration assets underperforming over the short term. However, as the lag effect of monetary policy tightening is reflected in slower growth, we should see better performance.
In our real assets holdings, Greencoat UK Wind announced impressive full year results with total return on the net asset value (NAV) up +31.3%, net cash generation of over £560 million and dividend cover at 3.1 times. The dividend was up by 13.4% year on year as it maintains an RPI-linked target.
Finally, within our alternative strategies, it has been encouraging to see a bounce back in both our private equity holdings, Princess Private Equity and Oakley Capital Investments, over recent weeks.
What’s happening this week?
28 February • US Consumer Confidence | 2 March • EU Inflation Rate | 3 March • UK S&P Global Services Purchasing Managers’ Index
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Sources: Nedbank Private Wealth and (1) Bloomberg, (2) Reuters and (3) Eurostat
The value of investments can fall, as well as rise, and you might not get back the original amount invested. Exchange rate changes affect the value of investments. Past performance is not necessarily a guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios and is referenced for illustrative purposes only, not as a recommendation, not least as it may not be suitable. You should always seek professional advice before making any investment decisions.