By Jan Faure
Global equity markets made positive gains in February, while global bonds retreated, as resilient economic data pushed out rate cut expectations. Both emerging and developed market equities made solid gains with Chinese equities rebounding and Japan’s Nikkei (+7.9% MoM) continuing to deliver outstanding performance. The Nikkei 225 Index reached a new all-time high after 34-years. Japan’s equity market benefited from Yen weakness, which has provided a significant tailwind for Japan’s large export-orientated companies.
The latest US jobs data for January painted a resilient US economic picture, with payrolls data substantially exceeding the consensus forecast. This strength was mirrored in the US equity markets with the S&P 500 Index gaining 5.1% for the month and the NASDAQ Composite Index rising an impressive 6.1%. The positive earnings momentum propelled three quarters of S&P 500 companies to report financial results ahead of expectations. Again, it was the ‘magnificent seven’ stocks (and AI theme) that made an outsized impact on the S&P 500’s performance in the month.
In Europe, the Euro Stoxx 50 index gained 5%, showcasing the region-wide market upswing, while the UK’s FTSE 100 lagged with a relatively flat performance for the month. The UK fell into a technical recession in the fourth quarter of last year as GDP slowed to -0.3% (QoQ annualised) from -0.1% in the preceding quarter. However, despite this setback, forward-looking indicators suggest the economy is already recovering - retail sales volumes in the UK rebounded strongly in January with the largest monthly rise since April 2021.
Meanwhile, global bonds came under pressure as inflation data raised expectations for a slower pace of rate cuts this year. Both the US consumer and producer inflation data came in hotter than expected. Headline consumer inflation (CPI) fell to 3.1% YoY in January (down from 3.4% in December) but still above the consensus forecast of 2.9%. The PCE price index (the Fed’s preferred measure of inflation) eased slightly to 2.4% YoY in January from 2.6% the prior month, in line with expectations and easing inflation concerns. Consequently, the Bloomberg Global Aggregate bond index declined 1.3% in February.
Central Bankers from the Federal Reserve (Fed), Bank of England (BoE) and European Central Bank (ECB) have noted that the disinflation process remains largely on track, underscoring their cautious approach while reaffirming that any changes to monetary policy will remain data dependent. The pivotal factor for the Fed’s rate-cut decision lies in whether inflation continues to converge towards their long-term inflation target of two percent.
The resilience of the US economy continues to serve as a pillar of support for US equity markets, generating a positive contagion effect across the financial landscape. Market sentiment remains poised with an overarching expectation that major central banks will pivot to interest rate cuts this year. The recent repricing of bonds has reinvigorated interest in the fixed-income asset class, presenting compelling opportunities once again for investors seeking stability and yield.
Table 1: Global Indicators – Local reporting currencies
