February General Markets Comments
“This world today is a mess” – Donna Hightower, 1972.
A slowdown (or a recession?) is expected, but economic releases do not support this projection yet; hard landing, soft landing or no landing (?); China is reopening, but underperforms; Oil is supposed to get scarcer, but do not rise; a weakening dollar is in everybody’s mind, but the greenback doesn’t seem to agree; long term yields rise, but Growth outperforms; Turkey is a NATO member and sends drones to help Ukraine, but also buys Oil and Gas from Russia; Chinese balloons fly over the US and its fighter jets circle around Taiwan; Mammoth Mountain in California has a 5 meters snow base, while Zermatt in Switzerland has 10 centimeters; and the list goes on. Yes, this world today is a real crazy mess.
Markets have a hard time performing well when too much uncertainties hover around; they wander even more when contradicting signals show up, which is clearly the case. The outcome of the conflict between Russia and Ukraine is anybody’s guess, but this might not be what drives market sentiment (although a severe escalation would undoubtedly trigger a massive sell-off); it is still Central Banks, monetary policies and interest rates which heavily weigh on the direction of markets, and in parallel the economic outlook.
Here again, making predictions often equals to betting on the black or the red at the roulette…
Even though markets struggled in February, they did resist somewhat, as only a fraction of the gains recorded in January were erased: the MSCI World abandoned 2.53% but is still up 4.3% year to date as an example; the S&P 500 lost 2.6%, the Nasdaq 0.5%, but the dollar was strong (+2.72% for the DXY), which can provide an explanation for the positive returns from the MSCI Europe and the Topix (+1.6% and +0.9%) and the MSCI Emerging Markets’ weakness (-6.5%). In the context of rising interest rates (+41 bps and +37 bps for the US and the German 10 year yields respectively) and falling Commodity prices (-2.3% for the WTI and -3% for the CRB Index), Gold logically fell (-5.3%). Credit enjoyed a second positive month in a row: the Itraxx Crossover advanced 0.5% last month and is now up 3.5% year to date.
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