SAA Monthly Investment Update: January 2023

Stock markets started 2023 on a strong footing with gains across global equities. China’s re-opening after dropping the zero-Covid policy in late December helped propel the advance. Signs that inflation is easing from its autumn highs in several major regions also supported sentiment, amid hopes central banks may be close to the peak of their rate hiking cycle.

US equities made robust gains in January. Investors’ focus on inflation - which cooled for the sixth successive month in December – remains sharp. The headline consumer price index (CPI) dropped to 6.5% from 7.1% mainly due to energy and food cost moderation. In combination with a stronger-than-expected GDP print of 2.9% (seasonally adjusted annual rate), the inflation data led investors to position for slower rate rises from the Federal Reserve from here. Risk appetites picked up, despite expectations of a slightly softer earnings season compared to Q4 2021. .

Global government bond yields fell in January (i.e. prices rose) on encouraging news on inflation – particularly out of the US. The month was light on central bank meetings, but the market began anticipating a slower pace of rate hikes by the Federal Open Market Committee (FOMC). The US 10-year yields fell from 3.88% to 3.51%, with the two-year falling from 4.42% to 4.21%.