Rory McPherson, Chief Investment Officer, 06/02/23
February kicked off in fine fashion, with the global stock market having its best week since June of last year. This came on the back of soothing comments from Central Bankers, with our own Governor Bailey noting that we were “beginning to turn the corner” as regards rising interest rates. Bond and equity markets quickly adjusted to reflect this resulting in big gains on Thursday in particular, which saw stock markets rise by over 1.5% and bond markets by over 2%. The calendar of scheduled events is much quieter this week after all the drama of last. UK growth numbers on Friday will be worth a watch given the recent downgrade in growth by the IMF and we’ve also got a few big UK listed companies reporting too this week.
Last week
- Stock markets rose very strongly last week: it was the best week for global stocks since June of last year
- The UK FTSE 100 reached a new high
- Last week saw interest rate increases from the American, UK and European Central Banks
- Bond markets rallied hard as there were strong indications that the pace of rate rises would slow from here
This week
- It is a very quiet week after the excitement of the one just gone!
- Friday sees us get growth (GDP) numbers for the UK. These will be interesting given the downgrade last week from the IMF.
- Earnings season continues to rumble on with results from BP (tomorrow) Disney and Uber (Wednesday) and then Astrazeneca, Unilever and British American Tobacco on Thursday.
- Chinese inflation data is released on Thursday
Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.
Last week in more detail.
Last week was a good one for stocks, with the global index up by 3.9%. This gain was driven by US and European shares but also by the fall in the Pound; down over 2.5% vs the US Dollar which meant that the overseas’ returns translated back very nicely. At a sector level, the key contributors were consumer discretionary and tech, with the latter being helped by Meta which rose by 26% on the week in GBP terms. Meta rose sharply on its earnings’ numbers, with revenue numbers (in particular) strongly beating analyst estimates.
Although Meta’s numbers (and outlook by Mark Zuckerberg) were positive, there were some disappointing numbers from tech giants such as Apple, Amazon, and Alphabet (Google’s parent company) which all reported on Thursday night. Alphabet missed (vs expectations) on earnings and revenue and Apple reported its first revenue decline since 2016. The US earnings season is now 50% of the way through and is on track to report a decline in earnings growth of roughly 5.3% (pretty much in line with expectations).
The UK FTSE All Share rose by 1.9% on the week, helped largely by the domestically focused FTSE 250 which rose by 2.8% and is now up 9.4% for the year-to-date. Within the UK market it was the retailers that led the way last week, with JD Sports up by 15.5% and B&M Value Retail up by 11.6%. The rises in the UK market saw the FTSE 100 close out the week at its highest level ever: closing out Friday at an index level of 7901.8.
The big news of the week came from the Central Banks of America, the UK and Europe. They all increased interest rates (which was expected), but the guidance from the US Federal Reserve and the Bank of England gave hope that the end to rate rises was in sight and the markets lapped it up.
The US Fed went first on Wednesday, with Fed Chair Powell hiking rates by 0.25% to 4.75%. He noted that the “disinflationary process” was “at an early stage” and didn’t contradict market pricing for interest rates. This was taken as a big positive (previously he has contradicted them) as the market is pricing in a terming rate of 5% and then cuts towards the end of the year. Friday then saw US jobs numbers, with 517,000 new jobs being added in January which was nearly triple what had been forecast. This took the unemployment rate down to 3.4% (lowest level since 1969) but this wasn’t taken as being inflationary by the markets due to wages continuing to track lower.
Our own Governor Bailey gave a similarly positive outlook following the decision from the Bank of England (by a vote of 7-2) to raise rates by 0.5% to 4%. Governor Bailey said that there were clear signs that inflation was coming down and that the Bank were “beginning to turn the corner” as regards raising interest rates. There is now only one more rate hike (of 0.25%) priced in by the markets for the UK.
The European Central Bank increased rates by 0.5% to 2.5% and have suggested that they’ll hike again by 0.5% in March. This is due largely to Europe doing much better than expected due to warmer weather (lower energy prices) and the boost that it has got from China re-opening.
Bond markets had a very strong week, with yields falling. Most of this move happened on Thursday following the Bank of England meeting, when UK gilt markets rose by 2.5% on the day and UK Corporate bonds rose by 2.3% on the day. This made for returns for the week of 1.6% for gilts and 1.8% for corporate bonds. UK Corporate bonds are now up by 6% for the year-to-date.
The FTSE 100 closed out last week at a new all-time-high!
This article contains general information only and it does not, nor is it intended to constitute financial advice. The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance
