2023 started on a positive note with higher prices for equities and fixed income. Commodity prices, led by gas prices, declined. This favors the level of inflation. Central banks are also closely monitoring inflation figures and adjusting their interest rate policy and outlook to these developments. Falling inflation prompted lower government bond yields. That in itself is favorable for equity markets and on top of that came strong corporate data. The euro strengthened somewhat against the dollar.
Shares
After a bad year for equities, January was good for equity investors. The MSCI All Countries World Index rose 5.3% (measured in euros) in January. Emerging markets (+6.0%) did slightly better than developed markets (+5.2%). Europe had a strong month with a positive return of 6.8%. Other developed markets such as North America (+4.8%) and Japan (+4.4%) lagged behind. Within emerging markets, the highest returns were for Latin America (+8.0%) and Asia (+6.8%), significantly higher than EMEA (+0.5%). Lower interest rates were a boost for growth stocks (+7.7%); they fared much better than value stocks (+3.1%). At the sector level, it was consumer luxury goods (+12.1%) and telecom (+11.2%) that were above average and it was the health sector (-2.2%) that lagged far behind.
Bonds
After rising at the end of last year, we saw a decline in interest rates across the board in January. The German 10-year rate, for example, fell 0.29% to 2.28%. We also saw a similar decline in the U.S. for the 10-year rate there (-0.38% to 3.50%). The risk premium for less risky corporate bonds was also lower for the month of January (-0.16% to 1.51%); for more risky corporate bonds, the premium went down harder (-0.55% to 4.60%). For emerging market government bonds, the premium stayed a bit closer to home: down 0.09% to the 4.44% level.