Weekly Round-Up, 6th March 2023
Rory McPherson, Chief Investment Officer
Stock markets put in a decent showing last week, with European shares leading the way. Within Europe, it was the Banking shares and those exposed to China which did best; with the latter factor also helping out some of the big names in the UK market. Last week saw bond markets continue to grapple with the prospect of higher interest rates and that theme is set to be in focus this week with the publication of the very closely watched US jobs numbers (on Friday) and also the US Federal Reserve Chair (Jerome Powell) is making his semi-annual testimony to the Senate Banking Committee (tomorrow) and the House Financial Services Committee (Wednesday).
Last week
- Stock markets within European markets lead the way
- UK share market gains were driven by the big index weighting to the “materials” sector
- Chinese economic data was strong last week
- Bond markets continued their slide as higher rates were priced in
This week
- US jobs data is likely the key event for markets this week. Friday sees the release of the “nonfarm payrolls” number for February which will very closely watched following the bumper one we saw for January (nearly 3x more than had been expected!)
- Friday also sees the release of the UK monthly growth figure for January; with a very small positive number being expected by Bloomberg economists.
- China is also likely to drive markets this week. They release their inflation numbers on Thursday (CPI and PPI) and there is also the 14thNational People’s Congress (NPC) taking place there this week.
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
- Stock markets put in a decent showing last week, with European stocks being the best performers. This very much follows the trend for this year, with the FTSE Europe ex UK index of stocks up by 10%.
- Within the UK stock market there wasn’t much to choose between the various component indices, with the FTSE 100, FTSE All Share and FTSE 250 all performing broadly in line. Within the FTSE 100 (i.e., the largest companies which tend to have international exposure), it was the heavily weighted (c12% of the index) materials sector that drove gains. Stocks such as Rio Tinto (+8.4%), Antofagasta (+8%), Glencore (+7%) and Anglo American (+7%) all rose strongly on the back of better data out of China (more on that below), which helped to drive gains.
- The US earnings season has now pretty much drawn to a close and Q4 earnings are set to show a blended decline of -4.6%. This is a bit worse than had been penciled in and marks a subpar but not disastrous earnings season for the US. Analysts have now strongly marked down their expectations for earnings growth for this calendar year, with the estimates having fallen from about 10% in June of last year to just 2% growth currently. This 2% growth number seems a lot more realistic and is one that companies will be able to beat more easily which in turn will be rewarded by the market.
- Chinese economic data was strong last week, and this helped turn the fortunes of emerging market equities (where China constitutes 33% of the benchmark weighting). Key economic survey data (“PMI” which stands for “Purchasing Managers’ Index) came in much better than expected. The manufacturing PMI rose to 52.6 (any number above 50 denotes “expansion”) which made for its highest reading since April 2012. The composite reading (including services) also came in strong at a level of 56.4 (a decent increase on the previous month). There was also some brighter data from the Chinese property market. This is key since it accounts for almost a quarter of Chinese growth (GDP). New home sales at China’s top 100 developers rose by 14.9% which helped the Chinese real estate sector report its first year-on-year growth since July 2021.
- UK housing data also came out last week and was pretty bleak! The figures (from Nationwide) showed that house prices in the UK are falling on an annual basis for the first time since 2012, with the year-over-year number showing a 1.1% decline. The data also showed a sharp fall in the number of mortgages being approved, with UK mortgage approvals (excluding the dip in the pandemic) falling to their lowest level since 2009. The data out last week (from the Bank of England) showed that just 39,600 new mortgages has been approved in January.
- Bond markets were broadly negative last week. This was due to higher interest rates being priced in by the market; largely on the back of stronger data from the US economy (the US had some very strong housing data last week). UK government bonds closed down the week lower by 1.1% and UK corporate bonds closed down the week lower by 0.7%. 10-year UK gilt yields closed out the week with a yield of 3.85% and UK investment grade corporate bonds closed out the week yielding 5.75%. This is the highest level that UK gilts have yielded since the chaos of October last year. A further reason for the push higher in yields was their rising in sympathy with stronger data out of Europe as core inflation rose there. European Central Bank President Christine Lagarde said that “we have every reason to believe that there will be another 50 basis point (0.5%) increase (in interest rates) at our next meeting”; which drove bond yields higher. We are expecting the Bank of England to raise rates by 0.25% when they next meet on 23rd
Chinese Manufacturing data (PMI) came out last week which showed a big rise, with the figure coming in at its highest level since April 2012:
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
