Global Market Review – February 2023

Global Market Review – February 2023

Tim Richardson CFA, Investment Specialist

Global equity markets began February by adding to January’s strong gains. But renewed fears that interest rates would keep rising and stay higher for longer soon sent bond yields up and share prices down. Volatility is expected to remain elevated and we may see a wider dispersion in individual stock returns this year.

Global shares unwound some of the new year price surge, falling 1.95% in Australian dollar terms during February. US, Australian, European and Asian share markets all weakened. Negative sentiment brought a bounce back up in the US dollar which had trended lower since October.

Global economy shows signs of continued improvement

Global share markets began February strongly. Investors focussed on expectations interest rates would peak early, signs the major economies might just evade a recession, and reasonably strong company earnings.

The US Federal Reserve (‘Fed’) increased interest rates by 0.25% in line with market expectations to 4.50% – 4.75%. However, share markets were boosted when Fed Chair Jerome Powell suggested “the disinflationary process has started.” European and UK central banks also decided to hike rates in February, tightening by 0.50%.

Optimism was reinforced by major companies reporting better than expected earnings results. These included Visa, Uber, Facebook-owner Meta, semiconductor developer Nvidia, pharmaceutical group Novo Nordisk and tractor manufacturer John Deere.

But good news soon seemed like bad news

The labour market remains tight across most major developed economies, with most companies finding it challenging to hire new staff. The US reported over half a million new jobs and unemployment falling to a historic low of 3.4% in January.

This is supporting annual wage growth, which increased 4.4% in the US and 6.7% in the UK. This is slowing the fall in US inflation, which in January dropped to 6.4%, above expectations. In Europe, it remained at 8.6% and in the UK it fell to 10.1%.

This is bringing a return of the ‘good news is bad news’ sentiment to markets. Persistent inflation is shifting expectations towards a higher peak in interest rates. During February, market pricing of the US interest rate peak shifted from 5.00% to 5.50%.

US ten-year Treasury yields increased 0.41% to 3.93%, while the interest sensitive two-year yields jumped 0.61% to 4.80%. The change in sentiment sent share markets lower across the board, but growth stocks outperformed more cyclical stocks, reflecting the slowing economy.

Geopolitical tensions continue to weigh on markets. US President Biden visited Ukraine in February to mark the first anniversary of the Russian invasion. Meanwhile, US-China tensions remain unresolved, continuing to threaten long-term trade and investment.

Australia keeps working

The Reserve Bank of Australia lifted its cash rate by 0.25% to 3.35% at its February meeting following the unexpected jump in December quarter inflation to 7.8%. Unemployment remains extremely low, but it increased slightly to 3.7% in January.

Strong retail sales supported reasonable half-year company earnings. Although Australian resources companies continued to deliver good returns, global commodity prices in aggregate have now fallen more than 20% since their 2022 highs.

The housing market remains weak but the pace of price falls slowed significantly in February, reflecting low levels of listings. House prices are down around 9% from the highs of April 2022 and are expected to remain under pressure as interest rates continue to rise.


  • Inflation is now falling around the world, but more slowly
  • Central banks will keep raising interest rates for some time
  • Rising interest rates are slowing consumer spending and industrial output, impacting the earnings of cyclical companies
  • Share prices are expected to remain volatile in the short-term, but stocks able to grow earnings through the business cycle should outperform as the economy slows
  • Real returns from cash and fixed income will continue to be impacted by high inflation
  • Rising interest rates will continue to impact transaction and price levels in the Australian housing market

Where does this leave investors?

Economic activity continues to weaken in developed markets and corporate earnings (in aggregate) are slowing. Pengana portfolios are firmly focused on companies able to grow earnings during a period when interest rates remain elevated and consumer spending is subdued.

These include businesses with a technological advantage, factory automation, and onshoring groups, pharmaceutical companies able to secure drug approvals, luxury goods houses with strong brand loyalty, disintermediated consumer brands and healthcare providers able to pass through rising costs as demand expands.

Companies with highly cyclical earnings, strong exposure to consumer spending, high borrowings, or unsustainable business plans should be approached with care.

China’s reopening will bring opportunities for well-managed businesses exposed to its pivot toward consumption.

Get monthly insights and market commentary direct to your inbox

Pengana Capital Group