The same but different
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Published: March 2023
Markets built on January’s positive start, but with some small but important differences.
Rising prices remained at the forefront of investors’ minds as the latest round of inflation numbers showed not all costs were easing as quickly as initially hoped. In the US, there was a slight slowing in the rate at which prices increased, but there were some elements (including shelter costs) which proved to be stickier. As a result, markets are expecting interest rates may need to stay higher for longer.
Geopolitics in focus
It’s a year since Russia’s invasion of Ukraine, but there are still no signs of an end to the conflict. At the same time, the shooting down of China’s spy balloon by the US added to the growing tension between the two superpowers. All of this added to an increased focus on geopolitics in February.
Expectations of interest rates staying higher for longer along with rising geopolitical concerns led to a slight weakening in bonds (as bond prices go down, yields go up) and a return to a slightly stronger US dollar. And at the time of writing, stocks from the technology sector are slightly up for the month, outperforming the market and last year’s winners like energy.
All change at the Bank of Japan
In Japan, Kazuo Ueda has been nominated as a potential new governor of the Bank of Japan. If he gets the job, many analysts think he may do away with long-standing, tight controls the bank has to help make it attractive for people and companies to borrow. The idea being that this in turn encourages people to spend more, stimulating the economy but also causing more inflation. While low inflation or even deflation has been a longstanding problem in Japan, recent elevated numbers suggest it could be time for the Bank of Japan to turn less accommodative. Such a change could cause much uncertainty for global markets and dent the performance of Japanese Government Bonds.
But the experts at Coutts who run the NatWest Invest funds had already reduced their investment in Japanese Government bonds in January, seeing some uncertainty ahead.
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