Macro
The performance across the major asset classes was varied for the month of February as markets continued to digest mixed economic data and uncertainty around growth. Geopolitically, the ongoing war in Ukraine and disputes in the Middle East threaten to stifle global growth and worsen existing challenges faced by global supply chains.
From the United States standpoint, February payrolls saw the addition of 275,000 new jobs. This further emphasized the continued resilience of the US labour force despite high interest rates and elevated inflation levels. Conversely, there were signs of weakness in the data with unemployment increasing to 3.9% from 3.7% and a reduction in the average hourly earnings from 4.5% to 4.3% year on year. Notwithstanding, the Federal Reserve (Fed) may interpret the unemployment rate and hourly earnings data positively because of their inflation reducing effects. If this trend persists, the Fed is more likely to initiate a rate cutting cycle with the first cut expected in June.
The UK economy received confirmation of being in a technical recession in the fourth quarter of the previous year, with prospects for improvement in 2024 a concern. However, there are some optimistic signs, as Consumer Price Index (CPI) inflation was unchanged at 4% year on year in January (last year January year on year inflation was at 10.1%) which was better than expected.
Similarly, core inflation for the Eurozone dipped by 0.1 percentage points to 3.3%, largely due to a reduction in the inflation of non-energy industrial goods, whiles services remained relatively unchanged. In addition, manufacturing output in the Eurozone as indicated by the Purchasing Manager’s Index (PMI), remained in contractionary territory at 46.6. The region’s Gross Domestic Product (GDP) data verified that its output was stagnant with notable variations among member states.
In Asia, Japan entered a technical recession, whilst China, after decades of heavy real estate investment is now estimated to have an excess supply of 50 million units. The resulting slowdown in the construction industry has far reaching implications from a global perspective as it will mean a reduction in the demand for key commodities putting a downward pressure on prices.
