Written by Chris Ayton.

Global equity markets were up in local currency terms last week; however, Sterling’s continued recovery left the GBP return for the MSCI All Country World Index up just +0.4%. In fixed income, the Barclays Global Aggregate Index was up +0.9% in GBP Hedged terms.

The S&P 500 Index was up +1.2% for the week in local currency terms but just +0.1% in Sterling terms.  The US Dollar fell back sharply over the week as data suggested that both core inflation for consumers and cost pressures for the manufacturing sector were easing. A speech from Fed Chairman, Jay Powell, also raised hopes that the Federal Reserve would slow its pace of future rate rises.  Similarly in the UK, the FTSE All Share Index rose +0.7% as data from the Bank of England suggested that inflationary pressures may be easing here too, potentially giving the Bank of England’s Monetary Policy Committee some room to be less aggressive on rate rises going forward.

Euro Area producer price inflation slowed more than expected, influenced by weakening foreign demand for German exports and strained supply chains.  EU member states agreed to implement a $60 ceiling on global purchases of Russian oil in a deal designed to dent Russia’s oil revenues. The cap is set to also be adopted by G7 countries, allowing countries such as China and India to continue to buy Russian oil but at a lower price.  That said, China and India have not yet confirmed they will implement the cap.

Emerging Market equities enjoyed another good week with MSCI EM up +2.5% in GBP terms. China was the key driver of this, with MSCI China up 7.6% on the week despite ongoing protests surrounding China’s Zero-COVID policy.

In Asia, India continued to perform well as investors are attracted to India’s strong GDP growth (predicted at 6.5%-7% for FY23) and they were further buoyed by a Reserve Bank of India bulletin signalling that inflation was slowing. Japan was the laggard as MSCI Japan fell back -3.0% in local currency terms although the losses for GBP investors were dampened by the continued rebound in the Yen which is being driven by hopes that the Federal Reserve in the US will start to slow its rates increases as well as the Bank of Japan’s efforts to prop up the currency.

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