After a strong start in January, markets were mixed in February with European indices adding small gains and US markets booking modest losses, countered by the US dollar gaining against the Euro. Hong Kong and China were the main underperforming markets with the Hang Seng index dropping 9,41%.

US inflation dropped for a 7th consecutive month from 6,5% to 6,4% but nonethless is showing resilience as a drop to 6,2% was the forecast consensus. Also core inflation decreased by 0,1% to 5,6% while a 0,2% decrease was the overall expectation. FED chair Jerome Powell reaffirmed that a slowdown in inflation is underway and reduced the pace of interest rate hikes from 0,50% in December 2022 and 0,75% increases prior to that to a modest 0,25%. There is still however agreement among FED members that rates may need to rise further than was initially assumed to bring inflation under control. As a result the yield on the 10-year treasury bills increased to 3,928%.  Q4 GDP growth was revised down in the second reading, to a still-strong 2.7% (quarter-on-quarter, annualised), down from 2,9% at the initial reading.

In February the Dow Jones, S&P500 and Nasdaq Composite lost 4,20%, 2,61% and 1,11% respectively while the dollar gained 2,63% to 1,0576 USD/EUR.

Eurozone shares gained in February. Top performing sectors included communication services, financials, industrials and consumer staples. Real estate, IT and healthcare posted negative returns.

The European Central Bank (ECB) raised interest rates by a further 0,50% to 3,0%. With Eurozone inflation still at well above 8%, a further increase is expected in March. In fact preliminary data for February indicated that inflation ticked up again in both France and Spain, so further steps will likely be needed.

The DAX, Eurostoxx and CAC40 indices added 1,57%, 1,80% and 2,62% respectively. The Slovene SBITop index outperformed, adding 5,67% to close at 1194,89.

UK equities also modestly gained with the FTSE100 index adding 1,35% and shortly touching a new all time high at 8047,06, while the Pound Sterling gained a modest 0,23% against the Euro. The UK economy has been performing more resiliently than expected, dodging a technical recession as the UK economy had not contracted in Q4 2022. The UK is still expected to fall into a recession later this year but is expected to be short-lived. Also the Bank of England raised the interest rate by half a percentage point.

Chinese shares cooled down in February after several months of strong gains, following the loosening COVID restrictions. In part the decline was due to escalating geopolitical tensions. The Hong Kong Hang Seng index lost 9,41% throughout February, erasing most January gains.

On the commodities markets, prices for oil and gas were relatiyely stable while the gold price declined 4,81% to 1836 dollars per ounce.
 

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - February 2023