The year 2023 kicked off strongly, as both equity markets and government bonds delivered solid returns. Despite a sense of general pessimism that had loomed at the end of 2022, it did not take much to raise the markets’ spirits. December’s inflation numbers on both sides of the Atlantic edged lower, fuelling the narrative that the cycle of rising interest rates is coming to an end.
The reopening of the Chinese economy further bolstered optimism about global growth. As a result, the 10-year US Treasury yield dropped to 3.5 per cent, a significant decrease from its peak of 4.3 per cent in October. The UK also saw similar gains, as the 10-Year Gilt yield fell to 3.4 per cent, down from 4.5 per cent following the Truss/Kwarteng mini-Budget in the autumn. Overall, the positive momentum of the beginning of 2023 is largely attributed to the expectation of falling inflation and the end of central bank tightening.
In broad terms, the riskier the asset, the better; bitcoin, for example, was up 39 per cent. Of the major equity markets, Italy led the way, with the FTSE MIB gaining 11.6 per cent. Other continental European markets followed close behind, with the CAC 40 up 9.4 per cent and the DAX up 8.7 per cent. In the US, the Nasdaq composite gained 10.7 per cent, with the broader S&P 500 Index up 6.2 per cent. In Far East markets, the Hang Seng was up 10.4 per cent and the Nikkei 225 up 4.7 per cent.