February Global Commentary: Markets Lose Steam on US Inflation Worries

  • Market Overview

After a strong start to the year, global markets lost steam in February ( MSCI World -2.4% MoM), with US employment and inflation data seemingly dashing investor hopes that the US Federal Reserve (Fed) was close to finished with rate hikes and would start cutting rates imminently. Data showing that the US added half a million jobs in January (more than twice consensus forecasts) and that US inflation slowed less than anticipated were a timely reminder that it was perhaps premature to declare a Fed victory over inflation. With interest rate markets moving to price in the possibility of at least a couple more Fed hikes over the next few months and a very low probability of any cuts in 2023, US 10-year bond yields climbed by 0.4% to 3.9%. Rising US yields also dragged the US dollar higher, with the greenback ending the month stronger against most major currencies as it more than reversed the weakness it had experienced in January.

By the end of February, most large US corporates had reported 4Q22 earnings, with S&P 500 earnings down c. 3% YoY in aggregate (or -7% YoY when removing the boost from the outsized profits generated by the energy companies). US large-cap tech stocks were amongst the few bright spots in February, extending a solid start to the year (NYSE FANG +3.8% MoM and +23.2% YTD), though with somewhat mixed results below the surface. Nvidia (NASDAQ: NVDA ), Tesla (NASDAQ: TSLA ) and Facebook (NASDAQ: META ) parent Meta all had a stellar month (+19%, +19% and +17% MoM, respectively), while Netflix (NASDAQ: NFLX ), Amazon (NASDAQ: AMZN ) and Google parent, Alphabet (NASDAQ: GOOGL ), had a tough month (all down 9% MoM).

Emerging markets (EMs) fared even worse than developed market (DM) stocks in February ( MSCI EM -6.5% MoM), with Chinese equities amongst the worst performing, particularly foreign-listed Chinese corporates. The Nasdaq Golden Dragon Index of US-listed Chinese corporates fell 11% MoM, with investors seemingly taking a breather after a 64% rally in those stocks in the three months leading up to February. Brent crude oil weakened marginally in February (-0.7% MoM), hovering around US$80/bbl for the third consecutive month.

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