January typically tends to be the strongest performing month, already, this appears to be vindicated with markets shrugging off the bearish sentiment of 2022 and turning bullish.
Global equities as measured by the MSCI World rose 7.1%, while global bonds as measured by the Bloomberg US Aggregate index also rose 3.3%.
The key drivers of performance were inflation, global growth expectations and China reopening.
The downward trend continued for US inflation with the December number up 6.5% and core figure which strips out volatile items like food and energy also lower at 5.7%. Falling energy prices, airline fares and used car prices were the components which fell for the month with shelter – which tends to have a 12-month lag – expected to fall. It was the lowest level in a year after peaking at 9.1% in June and suggested the aggressive pace of monetary tightening by the Fed could slow on the back of falling consumer demand.
The US Fed after raising interest rates by 0.5% in December is now expected to revert to the traditional 0.25% hike at its February meeting. To recap: 12 months ago, US interest rates were 0-0.25% and now are at 4.5%-4.75%.
Additionally, the fourth quarter US GDP (Gross Domestic Product) print came in better than expected at 2.9% annualised and the IMF (International Monetary Fund) global growth predictions for 2023 were revised up 0.5% to 3.2%, with most countries avoiding a recession this year.
