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Market Commentary Shorts – March 2023

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Robust macroeconomic indicators have led to investor fears of persistent stickier inflation, and a longer road of monetary tightening ahead.



Inflation fears continue to linger over the market

US equities declined for the month, led by energy and utilities. The resilience of the economy remains a concern for investors, mostly those who have been pricing in a slowing of rates for later this year. Despite corporate layoffs and lacklustre earnings, consumer confidence and retail spending remain strong. PMI’s shifted into expansionary territory, producer inflation printed hotter than expected, and the labour market remains stubbornly tight. Interest rates were hiked a further 25 bps at the beginning of the month, adding upward pressure on the dollar. The Federal Reserve stated that further increases would be required, to achieve their long-term target rate of 2% for inflation. Down -2.6% (US 500)


UK equities outperform their global counterparts but remain fragile

UK stocks outperformed their global market counterparts, driven by consumer staples and materials. As monetary policy efforts begin to take hold, the economy showed the initial signs of slowing, with GDP growth declining. House prices fell at their fastest rate in a decade. The Bank of England governor Andrew Bailey delivered a more dovish statement following another 50 bp hike early in the month. Despite some positive signals, the outlook remains mixed. While inflation remains at challengingly high levels, owing to prices of soft commodities and wage growth effects, PMI’s have improved but remained in contractionary territory, and consumer confidence has lifted. Up 1.2% (UK All Share)


European financials help propel the region

European equities were the best performing region globally, led by Spain (+4.4%), Italy (+3.3%) and Greece (+10.4%). European financials have been a key contributor to positive performance year-to-date. Inflation has declined in recent periods but remains well above trend, as food prices continue to move higher and there is little respite from a tight labour market. On a positive note, falling energy costs have continued to benefit both households and firms in the short term. The ECB has signalled that, despite a looming recession and receding manufacturing figures, they intend to follow through with scheduled rate rises to quell inflationary pressures. Up 1.7% (Euro 600 Index)


Move higher on accommodative Bank of Japan

On the back of the Bank of Japan’s decision to continue their accommodative monetary policy stance, leading to a softness in the Yen, both the Japanese equity and bond markets moved higher. In local currency terms, Japan has outperformed the US and other Asian counterparts this year, due to stronger corporate earnings and a tailwind from increased tourism. However, PMI figures are in negative territory and inflation is now reaching 40-year highs, effecting wage and goods costs, and ultimately impacting profitability. Geopolitical issues are also heating up, as North Korea fired missiles close to, and over, the Japanese mainland. Up 0.9% (Japan Index)

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DISCLAIMER – The value of your investment and any income from it may go down as well as up. You may not get back the original amount you invested. Past performance is used as a guide only; it is no guarantee of future performance.

Jennifer Turner


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