Macroscope

  Quarterly Macro & Market Review

     1Q 2023

By Sophie Metulescu

With the collaboration of Dorentin Morina

Market Performance

Data source: Bloomberg

           Macroscope

  Quarterly Macro & Market Review

1Q 2023

REVIEW BY ASSET CLASS

– EQUITIES  

Global equities gained in Q1, buoyed by receding recession worries in developed markets. Gains came despite the collapse of Silicon Valley Bank, which caused significant volatility in bank shares.

In March, followed the bailout of Credit Suisse by UBS which will create a bank twice the size of the Swiss economy. 

Growth stocks outperformed value in the quarter. 

 Sources: JP Morgan, Schröder, Bloomberg

In Europe

  • Eurozone shares notched up strong gains in Q1 despite volatility in the banking sector. Gains were led by the information technology, consumer discretionary and communication services sectors.
  • Laggards were real estate, energy and of course financials which had a turbulent time in March following the failure of US lender Silicon Valley Bank. A week later, troubled lender Credit Suisse was bought by UBS in a deal brokered by the Swiss authorities. However, the eurozone financials sector posted gains for the quarter overall, with Credit Suisse’s problems largely seen as being contained. The real estate sector saw significant falls amid worries over higher financing costs and weaker occupancy rates.

In the US

  • The short-lived market turbulence that followed the collapse of SVB in March did not prevent investor optimism leading US stocks higher over the quarter.
  • The financial sector, perhaps surprisingly, largely shrugged off the events surrounding SVB as investors concluded that the systemic risk was minimal.
  • It was stocks in the energy and healthcare sectors which lagged the most in Q1.
  • Tech stocks made some of the strongest gains.

In the UK

  • UK equities rose over the quarter. Economically sensitive areas outperformed, in line with other markets.
  • Industrials outperformed as did the consumer discretionary sector. The latter reflected a very strong recovery in many domestically focused areas. These bounced back as it transpired the UK economy had performed resiliently during the energy crisis.

In the Rest of the World

  • Asia recorded a positive performance in Q1, with strong gains by Taiwan, Singapore and South Korea offsetting weaker performance by Hong Kong, India and Malaysia.
  • China achieved robust gains after Beijing loosened its Covid-19 restrictions. Supportive property market measures and a loosening of the regulatory crackdown on technology companies also bolstered investor sentiment.
  • EM also posted positive returns, but lagged the MSCI World Index. The best-performing market was the Czech Republic.

  • South Africa lagged as it continues to suffer from the electricity crisis. It also was ‘grey-listed’ in February by the Financial Action Task Force given deficient processes to combat money laundering and terrorist financing.

  • India generated negative returns after allegations of fraud and share price manipulation at a major conglomerate early in the quarter.

           Macroscope

  Quarterly Macro & Market Review

1Q 2023

REVIEW BY ASSET CLASS

– FIXED INCOME & FISCAL POLICIES

In Q1 FI markets have been volatile with widening credit spreads. US and European investment grade posted positive returns towards quarter end, but high yield was negative with poor performance from the banking sector dominating. Convertibles could only partially benefit from the tailwind provided by equity market gains. The asset class only participated in 40% of the equity upside. Total new issuance volume stands at US$22.5 billion for the first quarter – a sharp contrast to the record lows of last year.

In Europe

  • The ECB remained more hawkish by comparison and hiked rates twice in 50bps increments in both February and March. Eurozone inflation declined to a one-year low in March. Consumer prices rose by 6.9%, down from 8.5% in February. However, core inflation (excluding food and energy costs) rose to 5.7% from 5.6%.
  • In France, government plans to raise the retirement age saw extensive protests across the country.

In the US

  • The Fed raised rates by 25bps in February and March, marking a slowdown. This took borrowing costs to the highest point since 2007. However, inflation – as measured by the PCE index – climbed less than expected in March, leading to speculation that further rate hikes will be limited and could even shortly come to an end.

In the UK

  • The BoE approved two rate hikes of 50bps and 25bps, respectively. The latest quarterly GDP data revealed that the UK economy had not contracted in Q4 2022. As a result, the economy dodged a technical recession by avoiding two consecutive quarters of decline (following the contraction recorded for Q3 2022).

  • The BoE latest quarterly forecasts still expect the country to fall into a recession later in 2023. This, however, should be shallower than predicted in the previous forecasts back in November 2022, as energy prices have fallen considerably since then.

  • The BoE voted to continue to raise interest rates as inflation proved stronger than expected, in part due to the resilience of the domestic economy.

In the Rest of the World

  • The Bank of Canada enacted a rate hike of 25bps but signalled a pause immediately upon doing so, while the Bank of Japan made no further adjustments to its yield curve control policy, despite core inflation rising. The BoJ also appointed a new governor.

           Macroscope

  Quarterly Macro & Market Review

1Q 2023

REVIEW BY ASSET CLASS

– CURRENCIES

  • The US dollar was weaker against most G-10 peers, driven by changes in rate hike expectations. 
  • Yen weakness supported cyclical stocks.
  • Seen as a safe-haven during the bank crisis, Bitcoin jumped more than 70% in the first quarter.

           Macroscope

  Quarterly Macro & Market Review

1Q 2023

REVIEW BY ASSET CLASS

– COMMODITIES

  • The S&P GSCI Index recorded a negative performance in the first quarter.
  • Energy and livestock were the worst-performing components of the index. Natural gas, gas oil and heating oil were all sharply lower.
  • Within precious metals, gold seen as a safe-haven during the bank turmoil, achieved a robust price gain approchaing all-time highs while silver achieved a more modest price uplift.
  • Within industrial metals, the price of nickel was sharply lower in the first quarter, while the decline in the price of lead was more muted. Copper and aluminium prices both advanced in the quarter.

           Macroscope

  Quarterly Macro & Market Review

1Q 2023

THIS QUARTER IN THE LIMELIGHT

– News & Buzz

           Macroscope

  Quarterly Macro & Market Review

1Q 2023

IN THE FUTURE

– WHAT THE SPECIALISTS SEE FOR 2023

Jamie Dimon, CEO of JP Morgan 

“ The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come. ”

Warren Buffett, CEO of Berkshire Hathaway 

“ We’re not over bank failures, but depositors haven’t had a crisis. More banks could go bust, but depositors aren’t going to be hurt.”

M. Harrison, Head of Research, Morgan Stanley 

“ In an environment of slow growth, lower inflation and new monetary policies, expect 2023 to have upside for bonds, defensive stocks and emerging markets.”

Larry Fink, CEO of BlackRock

“ I’m not sure we’re going to have a recession in 2023, we may have it in early 24. I believe inflation is going to be stickier for longer.”

Sean Darby, Global Equity Strategist, Jefferies

“ The greater the divergence in central bank policies, the greater the dispersion in equity returns is likely to be.”

 

           Macroscope

 Quarterly Macro & Market Review

1Q 2023

FINANCIAL BUZZ

– TERM TO UNDERSTAND THIS QUARTER

ChatGPT

 

Let’s have a look at the history and development of the artificial intelligence chatbot: ChatGPT. The founder of Tesla and CEO of Twitter – Elon Musk, himself – dubbed it “scary good”. Starting with the concept of machine learning and the attempts at creating intelligent computers, we trace the evolution of AI, OpenAI, and ChatGPT in this rapidly-evolving field of artificial intelligence.

           Macroscope

 Quarterly Macro & Market Review

1Q 2023

THE QUARTER AHEAD

– MAIN EVENTS & WHAT TO EXPECT

3rd May & 14th June: FOMC Meetings

The FOMC (Federal Open Market Committee) is the branch of the Federal Reserve that decides on the monetary policy on the United States.

What we can expect: 

We will most probably see a last interest rate hike for 2023 as inflation shows signs of cooling.

The actual interest of 4.75% to 5% is the highest level in 16 years.

14th May: Turkish Presidential Election 

Turkey is preparing for its most significant election to date, with the aftermath of a destructive earthquake compounding an already challenging political landscape and voters weighing up whether to retain President Recep Tayyip Erdoğan or opt for a change in leadership.  

What we can expect: 

According to recent polls, Erdoğan is closely trailing Kılıçdaroğlu, who are the primary contenders for the Turkish presidency. The race for presidency is expected to be a head-to-head competition between these two candidates.

19th – 21st May: G7 Summit

The G7 Summit is an annual meeting of leaders from seven of the world’s largest advanced economies to discuss and coordinate on global economic issues, regional affairs and other various global issues. 

What we can expect: 

The main topics of discussion will revolve around the Ukrainian war, atomic weapons, and the state of the global economy with regards to inflation, interest rates, and recession. Various other issues may also be addressed during the discussions.

21st May: Greek legislative election

Greece Summit is preparing to hold its legislative elections, which will be subject to a new electoral law that is likely to result in a coalition government.

What we can expect: 

Although the public opinion about New Democracy has been decreasing, the latest opinion polls indicate that they are still in the lead. Syriza is following closely behind them, while PASOK.KINAL has a noticeable presence with over 10% support.

The legislative elections, which will be subject to a new electoral law that is likely to result in six parties with seats in parliament. A second round is likely to occur approximately one month later.

4th June: OPEC+ Meeting  

OPEC+ is a group consisting of the Organization of Petroleum Exporting Countries (OPEC) member countries and non-OPEC oil-producing countries that collaborate to manage oil production levels and stabilize global oil prices.

What we can expect: 

The OPEC+ committee is expected to maintain its current strategy of cutting oil production by 1 million barrels per day.

4th May & 15th June: ECB Monetary Policy Meeting

The Governing Council is the main decision-making body of the European Central Bank. They take decisions, adopt the guidelines, and formulate monetary policy for the euro area.

What we can expect: 

We will most probably see the three key ECG interest rates increase. The currents rates are between 3% and 3.75%.