After a positive start to the year, US stocks generally fell during February. Sentiment towards larger companies in particular was undermined by question-marks over the economy and expectations of further monetary tightening.
- The US federal funds rate was raised by 25 basis points
- Germany’s economy continued to weaken
- Inflation in Japan rose at its fastest rate since 1981
Negative February for US large caps: after a positive start to the year, US stocks generally fell during February. Sentiment towards larger companies in particular was undermined by question-marks over the economy and expectations of further monetary tightening. Over February, the Dow Jones Industrial Average Index fell by 4.2% over the month.
“Fed policymakers expect to continuing tightening rates until inflation is under control”
Inflation eases again in the US: The Federal Reserve (Fed) continued to tighten the key federal funds rate , which was raised by 25 basis points to a range of 4.5% to 4.75%. This took rates to their highest level for over 15 years ; nevertheless, the raise represented a moderation in the Fed’s strategy, following previous increases of 50 and 75 basis points. Looking ahead, Fed policymakers expect to continuing tightening rates until inflation is under control. The annualised rate of consumer price inflation eased once again in January, falling to 6.4% – still considerably higher than the Fed’s 2% target. Elsewhere, the US labour market provided fresh food for thought as the economy added an unexpectedly high 517,000 jobs in January.
Question-marks over Germany: inflation pressures intensified in Germany during January: harmonised consumer prices rose by 9.2% year on year during the month, stoked by higher costs for energy and food. Meanwhile, the country’s economy contracted by more than expected in the final quarter of 2022, shrinking by 0.4% quarter on quarter as activity lost momentum, and raising fears of recession in Europe’s largest economy. Over February, the Dax Index rose by 1.6%.
ECB tightens again: the European Central Bank (ECB) policymakers raised the key interest rate by 50 basis points to 2.5% during February, commenting: “Keeping interest rates at restrictive levels will over time reduce inflation”. The central bank expects to implement at least one further increase of 50 basis points in March , after which officials intend to re-evaluate their stance. Inflation in the eurozone eased from 9.2% in December to 8.6% in January.
Inflationary pressures intensify in Japan: Japan’s rate of consumer price inflation increased at an annualised rate of 4.2% in January – its fastest pace since 1981 – fuelled by higher energy prices. Japan’s economy managed to avoid recession during the final three months of 2022, posting growth – albeit muted – of 0.6%. Nevertheless, growth was weaker than expected, hampered by a decline in capital expenditure. The Nikkei 225 Index rose by 0.4%.
To view the series of market updates through February, click here
