In January, the World Equities Index rose by 6.5% in local currencies and 5.3% in euro.
There was a trend reversal among sectors and styles. Growth stocks, which lagged in 2022, took the lead. The Nasdaq 100 Index surged by 10.7%. Information Technology, Communication Services (with Meta and Alphabet) and Consumer Discretionary (with Amazon.com and Tesla) outperformed the S&P 500.
Real estate stocks and Chinese equities, under pressure last year, gained more than 10%.
The Eurostoxx 50 rose by 9.9%. The big contributors in this rather concentrated index were luxury stocks (LVMH, Hermes et Kering) and semiconductor manufacturers (ASML Holding, Infineon) which gained between 15 and 20%.
A few sectors did not participate to this rally: the defensive ones (Consumer Staples, Utilities, Healthcare) as well as energy.
The Emerging Markets Index went up by 6% in euro and 6.5% in local currencies. Chinese, Korean and Taiwanese benchmarks gained more than 10%. The reopening of the Chinese economy is under way and its manufacturing PMI rose above 50. However, two significant accounting frauds were uncovered at Americanas (Brazilian retailer) and Adani (Indian conglomerate), reminding us that corporate governance is generally weaker in emerging markets than in Europe.
The equity market rally was fueled by expectations of lower inflation and the end of the hiking cycle approaching, perhaps even monetary easing in the second half of 2023. The latest CPI figures were indeed lower than a few months ago : 8.5% in the Eurozone in January (vs. 9.2% in December) and 6.5% in the United States in December (vs. 7.1% in November). In addition, 4Q GDP growth announced for the United States (+2.9%) and especially for the Eurozone (+1.9%) were stronger than expected.
The 10-year Bund yield went down from 2.57% to 2.19%. The yield on 10-year Treasury Bonds decreased from 3.87% to 3.51%. In terms of performance, high yield bonds outperformed. The Bloomberg Euro High Yield Index gained 3.1%. Its yield to maturity is now slightly above 7%. Euro-denominated investment grade bonds (both sovereign and corporate) gained a bit more than 2%. USD-denominated bond performance was a bit stronger.
The euro gained 1.5% vs. the US dollar and 3.4% against the NOK. Against other major currencies (GBP, CHF, JPY, CNY), there was little change.
Gold gained 5.7% in USD.
Oil price (WTI) went down a bit (-1.7%; 78.9 USD/bbl). European natural gas (Netherlands TTF Natural Gas Forward Month 1) plunged by 21% (59 EUR/Mwh), a level last seen in September 2021 well before the Russian invasion of Ukraine.