Welcome to the latest edition of our monthly market roundups.
Despite any major inflation surprises and a lack of central bank meetings, February was a strong month for global equity investors. With signs of inflation beginning to moderate, the market continues to expect initial rate cuts from June this year.
In our ‘Off the beaten track’ section, find out how one employee’s spreadsheet mistake cost his company $90m, and how the owner of a cryptocurrency course taught his students a lesson in how crypto really works by stealing their money… before having his own digital wallet hacked.
Inflation stays at 4%
UK inflation remained at 4% last month, below expectations. The Office for National Statistics reported in February that consumer prices increased by 4% annually in January, the same as in December. Analysts had anticipated a slight increase to 4.2%, just above the central bank’s estimate of 4.1%.
The data indicated that the major downward pressures from food and household goods offset upward pressures from higher gas and electricity charges. Services inflation, considered a better measure of domestic price pressures by policymakers, was slightly lower than expected, rising from 6.4% to 6.5%. Core inflation, which excludes more volatile energy and food prices remained steady at 5.1%.
This positive news on inflation slightly increases the likelihood of the Bank of England reducing interest rates later this year.
Source: Bloomberg
In the US, headline inflation slowed to 3.1% in January, a smaller than expected improvement, which, at the time it was released in the middle of February, challenged market expectations that the Federal Reserve would begin cutting interest rates in May.
However, on the final day of February, Personal Consumption Expenditures data, the US central bank’s preferred gauge of price pressures, matched economists’ expectations of 2.4%. The fall from December’s rate of 2.6% bolstered expectations that the Fed will cut rates from their current 23-year highs around the middle of this year.
Interest rates unchanged
While there were no central bank meetings held during February, the market continues to price in rate cuts from the Bank of England starting in June this year, with rates falling to around 4.5% by the end of the year:
Source: Bloomberg
Equity markets remain strong
With some slightly positive news on inflation coming through during February, along with strong Q4 earnings, equity markets were buoyed higher across all major regions. The US led the way, gaining over 6% for the month (in sterling terms) as the ‘Magnificent 7’ continued to push the market to new highs.
Emerging markets also performed well, lifted by the Chinese state fund Central Huijin Investment, who announced they had expanded their scope of investment in Chinese exchange traded funds, alongside a state media report announcing an additional $17bn in bank loans to support the country’s ailing property sector had been approved.
Source: Bloomberg
Bond yields consistent
Bond yields remained largely unchanged during February, as the inflationary data did little to alter the market’s opinions on future rate movements. Longer-dated UK bond yields rose slightly, from 3.8% to 4.1%, which is generally regarded as an optimistic indicator for the economy, as it suggests investors are less worried about the effects of long-term inflation.
Source: Bloomberg
Sterling marginally weaker
Sterling was slightly weaker during the month, but with no significant deviations in the path of expected interest rate differentials between countries, foreign exchange rate movements were subdued. GBP weakened against the US dollar by 0.5%, finishing at $1.2627, and also weakened against the Euro by 0.38%, finishing the month at €1.1683.
Off the beaten track
Last year, Norway’s $1.5tn sovereign wealth fund revealed that it had lost NKr980mn, roughly $92mn, due to an employee named ‘Simon’ making an incredibly costly spreadsheet mistake. He described it as, “My worst nightmare. It was a manual mistake. My mistake. I used the wrong date.”
In crypto news, the SEC announced it had settled fraud charges with Brian Sewell, owner of crypto educational course the American Bitcoin Academy. In 2018, Sewell encouraged hundreds of his online students to invest in a hedge fund that he claimed he would launch, and which would use cutting-edge technologies like artificial intelligence and trading strategies involving crypto assets to generate returns for investors. Sewell received approximately $1.2 million from 15 students, but never launched the fund, instead holding on to the invested money in bitcoin. He then claimed the bitcoin was eventually stolen when his digital wallet was hacked and looted. While probably not exactly how they imagined their crypto education would go, having someone scam you and then seeing the scammer have all their bitcoin stolen sounds like an excellent way to learn how crypto works.
Back with costly typos, US ridesharing company Lyft’s issued a press release erroneously projecting a particular measure of earnings margin to expand by 500 basis points. In reality, Lyft expected margins to grow by 50 basis points. The typo, which actually appeared in multiple company documents, helped drive a 67% surge in Lyft’s shares. Lyft Inc. Chief Executive Officer David Risher’s response was “My bad.”
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