January global commentary: Markets record the first positive start to a year since 2019

Our Global Economy Comments For January

2023 started on a positive note for developed market (DM) stocks (MSCI World +7.1% MoM), the first positive start to the year since 2019. The laggards of 2022 were the biggest winners at the beginning of this year, with tech shares bouncing back strongly from a torrid 2022 (Nasdaq 100 Index +10.7% MoM after falling 32.4% YoY in 2022), particularly some of the mega-cap tech shares (NYSE FANG+ Index +18.7% MoM after falling 40% YoY in 2022). Tesla (+41% MoM), Meta (+24% MoM) and Amazon (+23% MoM) led the way among the tech mega-caps, though all three remain well below the market values they carried at the start of 2022. S&P 500 companies began reporting 4Q22 earnings in January, with c. 180 companies having released 4Q22 earnings by the end of January. Those companies that have reported earnings thus far saw aggregate earnings flat relative to 4Q21. Still, that result was flattered by the exceptional profits currently being earned by energy companies, with the other sectors experiencing a slight YoY decline in aggregate earnings, albeit at a level that was ahead of expectations.

Emerging market (EM) stocks outperformed their DM counterparts (MSCI EM +7.9% MoM) for the third consecutive month. This was primarily due to Chinese stocks, which continue to benefit from optimism around the prospects for the world’s second-largest economy as it sees economic activity normalise off a low base as the country emerges from its zero-COVID restrictions. As a result, foreign-listed Chinese stocks were amongst the biggest EM winners at the start of the year (the Nasdaq Golden Dragon Index of US-listed Chinese stocks was up 18% MoM in January).

The latest US inflation data (for December) was in line with expectations (6.5% YoY) as inflation continued to fall from the June 2022 peak (9% YoY), encouraging bond investors that are increasingly positioning for the US Federal Reserve (Fed) to begin cutting rates in 2H23. As a result, US 10-year government bond yields fell 0.4% during January, ending the month at 3.5% and dragging the US dollar lower as the US Dollar Index declined for the fourth consecutive month.

Brent crude oil fell slightly in January (-1.7% MoM), ending the month at US$84.5/bbl, only marginally above the US$78/bbl level it traded at the beginning of 2022 before Russia invaded Ukraine. The Bloomberg Industrial Metals Index was up 7.7% MoM on optimism around increasing economic activity in China.

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