In February 2023:
1/The Fed volte-face and the Hawkish ECB, 2/ Mixed Cross Asset Picture, 3/ Interests in China
1/ The Fed volte-face and the Hawkish ECB. At the beginning of the month, the Fed rose its rate by 25bps as expected by the market. Powell’s comment that the “disinflation process has started” suggested that the tightening cycle is starting to have its desired effect of reducing the pace of price growth. However, the strength of the labor market, with a 3.4% unemployment rate, added pressure on the Fed to keep rising rates. At the end of the month, the PCE print higher than expected, suggested that the Fed may need to hold rates higher for longer. On the other hand, the hawkish ECB rose its rates by 50 bps and suggested another hike of that magnitude would follow at the next meeting.
2/Mixed Cross Asset Picture. The equity performance, as measured by the MSCI ALL COUNTRY WORLD, was down 2.69%. Benchmark Government bond yields climbed higher across the inverted curves. The US and EU 10Y-2Y spreads declined by 20bps and 12bps respectively to -90bps and -49bps. The precious metal slided 5.26% lower to $1826.92 an ounce and the start of the year was marked by heavy redemptions on Gold. On the other hand, money flowed into the EUR IG space and the CDS on the MAIN remained unchanged in February at 79.56bps.
3/Interests in China. In February, we’ve seen demand on the ETF Flows on the MSCI CHINA A. While it spent 59% of 2022 in negative territory, the reopening of China, marked by the end of the zero covid policy, dragged the index 12.98% higher in November and recorded gains in December and January. In February, it declined by 4.42%.
February Performance highlights (USD)
· Equity Indices: MXEF: -6.54%, M1CNA: -4.42%, SPX: -2.61%, MSCI WORLD: -2.53%, MSCI EUROPE: -1.06%, SX5E: -0.90%, NASDAQ: -0.49%,
· Bonds: GER 10Y: +37bps, US 10Y: +41bps, GER 2Y: +49bps, US 2Y: +61bps,
· Commodities: Gold: -5.26%, Oil: -2.31%, Natural Gas: +2.35%,
· FX: DXY: +2.72%, USDJPY: +4.67%.
From a regional perspective, Europe, International and UK equities were bought while US equities were sold. On the fixed income side, strong appetite for EU and US government bonds.
· On equity indices: The S&P500 and the MSCI JAPAN recorded a mixed activity. The MSCI USA CLIMATE CHANGE was sold. The MSCI EUROPE, MSCI WORLD ESG SCREENED and FTSE 100 were in favour.
· On fixed income: US TREASURIES 7-10Y and 20Y+ were bought while the US 0-1, 1-3, 3-7Y were sold. The IBOXX EURO SOVEREIGN and the BLOOMBERG BARCLAYS EU 1-3Y bought.