Introduction

February 2023 brought renewed volatility across global markets, as investor optimism from January was challenged by resilient inflation data, hawkish central bank commentary, and geopolitical flashpoints. Market participants continued to grapple with competing narratives: a soft landing versus sticky inflation, slowing growth versus labour market strength, and monetary policy tightening versus market resilience. While certain asset classes paused for breath, others recalibrated sharply in response to evolving macroeconomic signals.

United States

U.S. markets wavered in February, giving back some of January's gains. The S&P 500 declined by approximately 2.6%, while the tech-heavy Nasdaq lost about 1.1%. The downward pressure was driven largely by hotter-than-expected inflation reports. The January CPI, released mid-February, showed a year-on-year increase of 6.4%, reinforcing concerns that inflation may remain above the Federal Reserve's comfort zone for longer than anticipated.

Labour market data remained robust, with non-farm payrolls adding a staggering 517,000 jobs in January, pushing the unemployment rate to a 53-year low of 3.4%. This surprised markets and reignited expectations of a more aggressive Fed. Bond yields spiked as a result, with the 10-year Treasury yield climbing back above 3.9% by month-end.

Europe

European equities ended February flat to slightly negative, following a strong January. The Euro Stoxx 50 held relatively steady, but gains were tempered by stronger-than-expected core inflation. The European Central Bank (ECB) signalled further tightening, with officials warning that more substantial rate hikes were likely in March and beyond.

Economic data in the Eurozone remained mixed. Germany's industrial output improved marginally, while inflation in services remained sticky. The region benefited from falling wholesale gas prices and improving business sentiment, but the strong euro and elevated borrowing costs began to pressure exporters and cyclical sectors.

Asia-Pacific

China's reopening narrative continued to dominate market dynamics across Asia. The Shanghai Composite ended the month marginally higher, while the Hang Seng Index declined by over 9%, reflecting investor caution following January's exuberance. The initial post-reopening rally faded as markets awaited stronger evidence of consumer-led recovery and state stimulus support.

Japan's markets were buoyant early in the month but retreated as the Bank of Japan announced the nomination of Kazuo Ueda as its next governor, sparking speculation about future policy normalization. Meanwhile, Australia's ASX 200 dropped by 3.2%, driven by profit-taking in resource and financial sectors, despite strong employment figures and stable business confidence readings.

Emerging Markets

Emerging markets saw broad-based declines in February as dollar strength returned and global risk appetite cooled. The MSCI Emerging Markets Index fell approximately 6.5%, with underperformance in Asia and parts of Africa. India remained under pressure following ongoing scrutiny of the Adani Group and foreign investor outflows. Latin America's commodity-driven markets also retreated as oil and copper prices pulled back.

EM central banks in countries like Brazil and Mexico held rates steady, citing progress on inflation but underscoring the need to remain vigilant amid global monetary tightening cycles.

Commodities

Oil markets were volatile in February, with Brent crude fluctuating between USD 80 and 87 per barrel before closing near USD 83. Supply concerns remained muted due to robust Russian exports despite sanctions, while demand optimism from China was tempered by lukewarm economic data.

Gold prices declined around 5% during the month, retreating below USD 1,830/oz as real yields and the U.S. dollar strengthened. Copper and industrial metals paused their January rally, reflecting fading near-term momentum from China's reopening and increased global recession fears.

Fixed Income & Currencies

Global bond markets reversed course in February. The U.S. 10-year yield rose significantly, ending the month near 3.92%, as sticky inflation revived fears of prolonged policy tightening. In Europe, yields on German Bunds also climbed, while credit spreads widened modestly in both investment-grade and high-yield debt.

Currency markets saw a notable rebound in the U.S. dollar, with the DXY index rising over 2.5%. The euro and pound retraced some of their January gains, while the Japanese yen weakened slightly on renewed BoJ uncertainty. The Singapore dollar remained relatively stable amid low volatility in ASEAN FX markets.

Outlook

February marked a reality check for global markets as the inflation narrative reasserted itself. Investor expectations for rate cuts in 2023 faded, and risk assets recalibrated accordingly. While economic fundamentals remain stronger than feared in many regions, inflation persistence and policy uncertainty continue to cloud the outlook.

As Brightness Capital & Asset Advisory looks toward March, all eyes will be on updated inflation prints, central bank meetings, and signals from China's upcoming National People's Congress. Amid crosswinds and contradictions, we maintain a flexible, data-driven approach, emphasizing sectoral selectivity, geographic diversification, and vigilant risk management.