Following a strong start to the year, spurred by improving inflation data figures and growing hopes that the current global monetary tightening cycle was nearing its end, solid economic data released in February led to a sell off in both bond and equity markets. The Bloomberg Barclays global aggregate bond index closed the month in the red returning -3.3% underperforming global equity markets which rounded off the market with a return of -2.4%.
While the typical expectation is that markets would welcome strong economic data; the economic data released in February led many investors to re-evaluate the previous consensus views of where interest rates would peak and, more significantly, when rate cuts could be expected. If the economic picture remains strong, central banks have more slack to keep increasing rates in a bid to bring down inflation which is behaving more stubbornly than many expected. Markets began to price out a rate cut by the end of 2023 which punished equity and bond investors alike. Central banks in the US, UK and Eurozone remained united on the view that, in the battle against inflation, their job is not yet done.
