Markets Wrap (23 January – 6 February)

Stocks
S&P 500 had one of the best starts to the year as the index rallied by 6.18% in January on investors' hopes for less aggressive central banks and a soft economic landing, which would not cause profound drop in earnings. With over a half of S&P 500 companies' result already in, 52% of them reported better than expected sales figures (versus 26% below the estimate and 22% in line with it) and 69% earned more profit than analysts projected (versus 28% and 3% respectively). 

Central banks
The world's largest central banks did not make major surprise moves at February meetings, and even though the recent downtrend in the pace of price growth was duly noted by central bank governors, they also said that it was too early to call it a victory on inflation. 

• The FED hiked the rates by 0.25% (to 4.50-4.75%), and as expected, continued to signal upcoming increases, although the market took J. Powell's remark on slowing inflation as a dovish turn in the central bank’s communication (EUR/USD increased by 1.2% on the day of the meeting).
• The ECB lifted the interest rate interval by 50 bps (to 2.50-3.25%) for the second time in a row and noted in a press release that another move of the same magnitude is to be expected in March. The ECB also reiterated its plan to start shrinking the securities portfolio – net negative purchases will amount to EUR 15bn in March-June, with the pace of tightening afterwards yet to be decided. 
• As expected, the bank of England delivered another 50 bps hike, bringing the key rate to 4%. According to governor A. Bailey, the pace of inflation should drop swiftly from the current rate of over 10% to around 4% in 2023 and below 2% in 2024, but there is still a fair amount of uncertainty surrounding the base case scenario. Labor shortages have caused wage growth to accelerate to above 6% y-o-y at the end of 2022, which may cause the inflationary pressure to become sticky and subside not as quickly as currently expected.   

Macro data 
US January jobs report was a real blow to those hoping for the FED to make a pause, let alone a policy pivot in the near future. Non-farm payrolls increased by 517k, dwarfing the consensus forecast of 190k, whereas unemployment fell from 3.5% to 3.4% – the lowest level in 53 years. An element of consolation was a deceleration of average hourly earnings growth (from 4.6% to 4.4%), but overall, the obvious conclusion to be made is that the US labour market remains red-hot. 

Commodities
European gas prices retreated as supplies remain plentiful and milder weather is set to return soon. Storage levels have slid recently, but are well above the 5-year average. Efforts to curb demand and stable shipments of LNG have helped Europe to avoid major supply disruptions so far. The price of gas in Europe has narrowed considerably versus oil (in equivalent terms, measured by price for MWh), whereas coal remains the cheapest alternative (Chart 5).