January proved to be an excellent month for markets. After a very challenging 2022, global equity and bond markets rallied strongly during the period. Investor sentiment was supported by several factors, the main being: declining inflation, relatively mild weather in Europe (helping to push down energy prices) and China’s reopening after the government abandoned its zero-Covid policy late last year.  This resulted in markets rapidly discounting the best possible scenario of sharply falling inflation (back to central bank targets), falling interest rates, and a ‘soft-landing’ for economic growth. While it is undoubtedly nice to see some ‘green on the boards’ (positive returns), we believe that markets may have got ahead of themselves given the likelihood of slowing economic activity, due to the accumulation of monetary policy tightening and ‘stickier’ inflation ahead, which will limit the ability of central banks to cut interest rates.

Global equity markets (+6.5%) were up sharply on the month. The improved energy situation benefited Europe ex UK (+7.0%), the loosening of COVID restrictions in China boosted Asia ex-Japan (+6.9%), while UK (+4.1%) equites lagged. In terms of style, the interest rate sensitive growth stocks (+9.6%) outperformed the more value / cyclically oriented equities (+5.0%). This was to some extent also reflected in sector performance, with consumer discretionary (+14.1%), communication services (+13.2%), and information technology (+10.5%) the best performing areas. At the other end of the spectrum, healthcare (-0.4%), utilities (-0.1%) and consumer staples (+1.4%) sectors trailed the most.

Within fixed income markets, declining inflation and increased risk appetite meant all areas generated positive returns. Looking at the detail, global government bond prices rose (+1.8%), on reduced interest rate expectations. Global investment grade credit (+3.5%) generated a positive return over the month as spreads tightened, and at the risker end of the credit spectrum the same was true with global emerging market debt (+3.1%) and global high yield (+3.9%) also rallying strongly during January.

In terms of real assets, the more economically sensitive property markets outperformed equities over the month, with the global REITs index up +9.0% over the period while global listed infrastructure (+1.4%) lagged. Commodities (-0.5%) were broadly flat on the month, however, there was significant divergence across the different markets.  Industrial metals (+8.1%) was the strongest area, supported by China’s reopening, closely followed by gold (+6.0%) which itself was helped by a weaker US dollar. In a reversal of some of the gains seen last year, it was energy (-9.7%) that was the weakest area with natural gas (-34.3%) falling sharply on lower demand due to warmer weather in Europe.

INDEX END DECEMBER VALUE END JANUARY VALUE
FTSE 100 7451.74 7771.7
DJ Ind. Average 33147.25 34086.04
S&P Composite 3839.5 4076.6
Nasdaq 100 10939.76 12101.93
Nikkei 26094.5 27327.11
£/$ 1.2083 1.232
€/£ 0.88534 0.88161
€/$ 1.0705 1.0863
£ Base Rate 3.5 3.5
Brent Crude 85.91 85.46
Gold 1824.02 1928.36

This month’s values quoted as at 30/11/2022. The above values are sourced from Bloomberg and are quoted in the relevant currency.