After a volatile 2022, January began with a sense of renewed optimism. Inflation rates in the western world continued to trend downwards, although at different paces. In the UK, consumer price index (CPI) inflation fell to 10.5% in December, lower than previous months, but higher than in the Eurozone and US, where CPI inflation was 9.2% and 6.5%, respectively. This decline was largely due to a significant drop in energy prices, with European gas prices returning to pre-Ukraine invasion levels.
The improvement in sentiment gave equities some positive momentum, despite some occasional volatility. The chart below shows the one-year rolling performance of UK, US and global equities in Sterling terms. Global equities returned -2.63%, US equities returned -4.16%, while the UK achieved a positive return of 1.57%.
Continuing the trend of the previous quarter, emerging markets broadly underperformed their developed counterparts. Global bonds returned 3.0% over the quarter, largely due to the improved performance of corporate bonds and the prospects for a quicker end to interest rate hiking programmes and perhaps even start cutting rates by the end of the year.