Monthly Market Summary: January 2023

Investment Insights Team, Investment Strategist Team, Wealth Management

Summary: A strong start to the year for stocks and bonds   

Capital markets experienced their strongest January gains in years: global equities rose 7.2% and global government bonds increased 3.1% (both in USD terms). Key themes in January included:

  • ‘Risk-on’ resumes as inflation moderates and peak interest rates move into focus
  • Economic indicators stabilise but corporate earnings continue to be downgraded;
  • China’s rally persists as Covid-19 reopening boosts sentiment.

Moderating inflation, easing energy prices and expectations of a slowing tightening cycle, particularly in the US, buoyed both stock and bond markets in January. The upbeat mood was also supported by China's lifting of Covid-19 restrictions and signs of possible further fiscal and monetary support from Beijing. Fourth quarter earnings season has been mixed, with aggregate US earnings now falling 5% and slightly below analysts’ expectations. In commodity markets, gold and copper outperformed, while the oil price was rangebound.

US: Solid growth; Fed in focus; Debt ceiling impasse

The US Economy expanded by an annualized 2.9% in Q4 2022, beating forecasts of 2.6%, and with output expanding by 2.1% over 2022 as a whole - in line with its 10-year trend. The manufacturing ISM data for January were still below 50 – with the closely-watched New Orders sub-index looking notably week (at 42.5). Other data were mixed: retail sales for December fell by 1.1% (m/m), but durable goods order jumped by 5.6%. The US headline inflation rate slowed for a sixth straight month to 6.5% (y/y) in December and the core inflation rate also subsided to 5.7%. Despite hawkish comments by Fed officials, money markets are still discounting rate cuts in the second half of 2023. On Capitol Hill, legislators risked another federal shutdown without an agreement to raise the US debt ceiling. The new Republican Speaker of the House of Representatives, Kevin McCarthy, is seeking spending cuts as part of the negotiations.

Europe: Growth continues; Rebounding PMIs; ECB hawkish

Preliminary GDP estimates suggest the Euro Area economy avoided a contraction in the final quarter of 2022, expanding 0.1% (q/q). However, it was the weakest pace of expansion since Q1 2021. The Euro area’s ‘flash’ PMIs continued to stabilise, ticking modestly higher across both manufacturing (48.8) and services (50.7) in January, supported by the abating energy shock. The eurozone headline inflation rate fell to 8.5% (y/y %) in January (down from 9.2%), while the core inflation rate (which excludes volatile items such as energy and food) remained at its record high of 5.2%. Reflecting this stickier inflation, ECB policymakers continued their hawkish rhetoric, with markets discounting 50bps hikes at each of the next two policy meetings. In politics, Croatia joined the eurozone and the borderless Schengen Area on 1 January 2023.

ROW: China’s reopening; Solid Japanese data

Chinese equities outperformed in January, driven by the end of China's zero-covid policy and brighter prospects for economic growth in 2023. The Chinese economy grew by 2.9% (y/y) in Q4, with output expanding by a respectable 3% in 2022, but still falling short of the official target of c.5.5%. The removal of covid measures overshadowed any Lunar NY data weakness, with the official NBS PMI increasing sharply in January to 50.1 and 54.4 for manufacturing and services, respectively. In Japan the inflation rate for December increased to 4.0%, while industrial production and the retail sales surprised positively.

Performance figures (as of 31/01/2023 in local currency)

Fixed Income Yield MTD % 1Y %
US 10 Yr 3.51% 3.2% -10.1%
UK 10 Yr 3.33% 2.9% -12.4%
Swiss 10 Yr 1.28% 2.7% -7.7%
German 10 Yr 2.28% 2.5% -15.7%
Global IG (hdg $) 4.73% 3.5% -8.7%
Global HY (hdg $) 8.63% 3.9% -5.5%
Equity Index Level MTD % 1Y %
MSCI World($) 8,551 7.1% -7.5%
S&P 500 4,077 6.3% -8.2%
MSCI UK 14,382 4.1% 9.5%
SMI 11,286 5.2% -5.1%
Eurostoxx 50 4,163 9.9% 3.4%
DAX 15,128 8.7% -2.2%
CAC 7,082 9.6% 4.3%
Hang Seng 21,842 10.4% -5.1%
MSCI EM ($) 524 7.9% -12.1%

 

Currencies (trade-weighted) MTD % 1Y %
US Dollar -2.1% 3.6%
Euro 0.9% 3.1%
Yen -0.4% -8.0%
Pound Sterling 0.1% -5.1%
Swiss Franc -1.4% 5.2%
Chinese Yuan -0.2% -2.5%
Commodities Level MTD % 1Y %
Gold ($/oz) 1,928 5.7% 7.3%
Brent ($/bl) 84.49 -1.7% -7.4%
Copper ($/t) 9,200 10.0% -4.0%

Source: Bloomberg, Rothschild & Co.

Real GDP growth
(2022 growth relative to pre-pandemic trend, %)

*UK full-year estimate based on Bloomberg Consensus data
Source: Bloomberg, Rothschild & Co., 01.01.2014 – 31.12.2022

Read more articles

  • Strategy blog: The return of bank risk?

    Insights

    As focus shifts from the collapse of Silicon Valley Bank last week to the solvency Credit Suisse, central bank interventions have soothed fears of the contagion spreading. In this strategy blog our team analyses why our overall risk appetite remains unchanged.

  • Strategy blog: Banking stress containable

    Insights

    Idiosyncratic headwinds compounded by losses on its treasury and mortgage-backed security portfolio lead to the collapse of Silicon Valley Bank. Are there signs of contagion? In this Strategy blog, we analyse the situation around the collapse and consider further risks.

  • Asset Management Europe: Monthly Macro Insights - March 2023

    Market Commentary

    Despite cautious central bank communication about the policy outlook, particularly in view of the persistent strength of labour markets, investors were expecting rate cuts in the second half of 2023 amid a fall in global inflation. Yet, recent macroeconomic data has poured cold water on their quick disinflation sanguine view.

  • Perspectives: A Female Legacy

    Market Perspective

    This International Women's Day we open the door to the Rothschild Archive. In the latest episode Wealth Management Switzerland's Perspectives podcast, Laura Künlen and Melanie Aspey, Director of the Rothschild Archive, shed light on how the women of the Rothschild family shaped the early days of the business and how their legacy translates till today.

  • Strategy blog: The energy crisis - one year on

    Insights

    Lower commodity prices, including energy prices, are trickling down to consumers, affecting both sides of the Atlantic slightly differently. In this strategy blog, we examine how the energy crisis has abated a year after the outbreak of war in Ukraine and its impact.

  • Monthly Market Summary: February 2023

    Insights

    Capital markets experienced a difficult February, as renewed interest rate risk from further monetary tightening moved into focus. Both global equites and government bonds fell last month.

Back to top