After suffering their worst year since the global financial crisis, equity markets bounced back in the first month of 2023. The MSCI World NR index, which tracks the global developed equity market, rose 6.50% in January, amidst expectations that central banks would ease rate hikes over the coming year. European stocks in particular saw a healthy bounce during the month, with the Eurostoxx 50 NR index climbing nearly 10% in its best performing January to date.
Inflation continued to recede slightly from its recent 40 year highs last month as the UK Consumer Prices Index lowered from 10.7% to 10.5%, while in the US inflation fell below 7% for the first time in a year. Bond yields also dropped back as a result, with the 10 year gilt yield slipping from 3.67% to 3.32% during the month. However the Bank of England is still expected to increase rates for the tenth time in fourteen months this week.
Full round-up of January market performance
In the UK, the FTSE 100 index gained 4.35% while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index respectively, gathered 6.59% and 5.19%. In the US, the S&P 500 USD index rose 6.28% while in Europe the Eurostoxx 50 EUR index surged 9.93%. Japanese stocks measured by the Topix JPY index were up 4.42%.
Emerging markets returns were also mostly positive, with the MSCI Emerging Markets index climbing 6.55% in local currency terms. Latin American equities, measured by the MSCI Latin America local currency index, gained 5.92% and Chinese stocks measured by the MSCI China local index jumped 11.75%. However Indian stocks measured by the Nifty 50 INR index fell 2.45%
In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, rose 2.56%, with long-dated (over 15 years to maturity) gilts gathering 3.91%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, grew 3.99%. In the high yield market, the Bank of America Merrill Lynch Sterling High Yield index returned 3.56%.
There were mixed returns in the commodities market. The S&P GSCI USD index, which consists of a basket of commodities including oil, metals and agricultural items, moved -0.09%. Crude oil futures slipped 1.73% during the month. In the agricultural markets, corn and wheat futures delivered 0.18% and -3.88% in USD respectively. In the precious metals markets, the S&P GSCI Gold and Silver indices returned 6.02% and -0.45% in USD respectively.
In the currency markets, it was a positive month for the pound as it appreciated 1.96% versus the US dollar, 0.43% against the euro and 1.15% versus the yen.