EXANTE Quarterly Macro Insights

EXANTE Quarterly Macro Insights

Q1 review

The first quarter of 2023 was a rollercoaster for investors. Global growth has been more resilient than expected with US, UK and European PMIs all moving into expansionary territory. Headline inflation was down on lower energy prices, but core inflation remained stickier, forcing global central banks to tighten monetary policy further. However, markets were in turmoil in March as the collapse of Signature Bank and SVB in the US, followed by the fire sale of Credit Suisse to UBS later in the month, raised concerns over global banking sector stability. This caused stocks to dip sharply in March before recovering to finish the month and quarter higher. It now appears that many investors concluded that the systemic risk was minimal. This is likely due to the quick intervention by the Fed, the US Treasury, the Federal Deposit Insurance Corporation (FDIC) and other central banks in terms of offering protection to deposit holders and opening liquidity windows. Although tech stocks took the initial brunt of rate rises in the early part of Q1, they also made some of the strongest gains by the end of the quarter. Energy, healthcare and real estate stocks were down in Q1. The sudden rally in bonds caused by the banking scare also led to a rally in growth stocks, which were up over 15% over the quarter.

US indices for Q1 2023

S&P 500 +7.50% QTD
Nasdaq 100 +20.8% QTD
Dow Jones Industrial Average +2.1% QTD

European Indices

DAX +11.48% QTD
CAC40 +12.20% QTD
IBEX 35 +11.88% QTD
FTSE MIB +13.98% QTD
FTSE 100 +2.26% QTD

Global Indices

Hang Seng +2.67% QTD
MSCI global +4.94% QTD

Fixed Income

The yield on 10-year Treasuries to 3.55%.
Germany’s 10-year yield to 2.37%.
Britain’s 10-year yield to 3.52%.

Bond yields surged throughout Q1 on expectations of rising interest rates with the US 10 year reaching over 4% at one stage. The inversion in early March between 2 and 10-year US treasuries hit its highest since 1981. However, the sudden volatility caused by the collapse of SVB and Credit Suisse led to bonds rallying in March, highlighting growing concerns about a potential recession in the US, a pause and even possible reversal of US rate hikes later in the year, and higher risks of a global growth slowdown. The 10-year U.S. Treasury yield opened the year at 3.88% and ended the quarter at 3.55%.

Note: As of 6:00 pm EST 31 March 2023


Oil fell throughout most of Q1 with Brent crude futures hitting lows in early March of around $70 per barrel. All this changed with a surprise move in early April by OPEC+ to cut production by 1.16 million barrels per day.

Gold futures rose to $1,999 an ounce by the end of Q1, reaching a 13 month high as investors turned to it as a safe haven amidst a falling USD. Growing expectations that monetary tightening will soon be coming to an end has made gold far more attractive. The surprise oil output cuts by OPEC+, weaker US economic data, and continuing central bank purchases has now sent gold above the psychologically important $2,000 mark.

The US

In the US the Fed continued to raise rates in Q1, but indicated in its March meeting that it was on the verge of pausing further rate hikes due to financial market turmoil. The funds rate finished Q1 at a range of 4.75%-5.00%, its highest since 2007. Headline inflation appears to be slowing, falling to 6% in February, the lowest since September of 2021. Core inflation is coming down at a slower pace, still at 5.5% in February. It also appears that labour markets may now be cooling as the latest JOLTs report showed job openings falling below 10 million at the end of February for the first time in nearly two years and the latest ADP data showed private employment increasing by only 145,000 jobs. However, nonfarm payrolls were up 311,000 in February after a massive rise of 517,000 in January. Nevertheless the unemployment rate did rise to 3.6% in February from 3.4%. Average hourly earnings rose by just 0.2% month on month, and 4.6% year on year, which shows that wage pressures are gradually decelerating. 

Technology stocks have managed to outperform so far this year on growing expectations that the Fed will stop raising rates sooner than expected earlier in the year due to the tightening in market conditions caused by recent bank stresses. According to the Nasdaq market intelligence desk, S&P 500 Tech stocks were +21.8% in Q1 and communication stocks were +20.5%. Investors have been turning to the tech sector as a safe-haven after the financials sector was hit by the collapse of SVB, Signature and the fire sale of Credit Suisse. 

In Q1 energy stocks were -4.7% with Exxon MobilChevron Corporation, and ShellOccidental PetroleumHess CorporationSchlumberger Limited,HalliburtonConocoPhillips, and  Marathon Oil Corporation all down for the quarter. 

The Eurozone

Eurozone shares had strong gains in Q1 despite volatility in the banking sector. Equity gains were supported by hopes that inflation may have peaked as gas prices continued to fall. MSCI Europe ex -UK equities gained 10.5% in Q1. The ECB raised interest rates by 50 basis points in both February and March. Eurozone inflation declined to a one-year low in March, rising by 6.9%, down from 8.5% in February. However, core inflation (excluding food and energy costs) rose to 5.7% from 5.6%. The ECB also updated its macroeconomic projections and now expects higher growth and lower inflation this year. The financials sector posted gains for the quarter overall, as the problems associated with Credit Suisse were seen as being contained due to quick intervention by the Swiss Central bank. Gains were led by the information technology, consumer discretionary and communication services sectors while real estate and energy lagged the wider market’s advance. The commercial real estate sector saw significant falls as investors grew more concerned about higher financing costs and weaker occupancy rates. 

The UK

The UK economy just managed to avoid a technical recession with a revision in data. In its latest quarterly forecasts, the Bank of England (BoE) said it still expected the country to fall into a recession in 2023 although it does not expect it to be as deep as previously anticipated. The S&P Global/CIPS UK Manufacturing PMI came in at 47.9 in March 2023, down from the earlier flash estimate of 48.0 and February's seven-month high of 49.3. This is the eighth consecutive month of contraction in the country's manufacturing sector. The S&P Global/CIPS UK Composite PMI was 52.2 in March 2023, down from 53.1 in February but remaining in expansion territory for the second consecutive month. Consumer confidence surprised to the upside, increasing from -45 in January to -36 in March. Both headline and core inflation increased, to 10.4% and 6.2% respectively, year on year, in February. The Bank of England increased its policy rate by 25bps in March to 4.25%. UK equities underperformed global equities, but still gave just over 3% growth. Industrials outperformed as did the consumer discretionary sector. UK government bonds managed to return about 2%.

Asia ex-Japan

In Asia ex-Japan, stocks were boosted by China’s relaxation of its zero-Covid policy. In Q1 the MSCI Asia ex-Japan index was up 4.4% according to JPMorgan Asset Management, with strong gains by Taiwan, Singapore and South Korea offsetting weaker performance in Hong Kong, India and Malaysia.

Emerging markets

In Emerging markets, according to the MSCI EM index, equities were up 4% in the first quarter. However, the optimism that came with the re-opening of China’s economy in early Q1 gave way to growing concerns as central banks in developed countries continued to raise rates throughout Q1, creating tighter credit conditions globally and weakening many EM currencies. According to data from Schroders, the best-performing market was the Czech Republic. Mexico outperformed against a backdrop of improving economic data while Taiwan and Korea were beneficiaries of optimism about global growth. Peru, Indonesia and Chile outperformed too.


The US dollar was weaker against most of its peers due to changes in rate hike expectations. The ECB’s determination to battle inflation with its series of rate rises helped the EUR to recover some ground. It rose 2.3% in Q1 against the US dollar. 

A stronger-than-expected economy, expectations of rising rates, and falling energy prices has helped the pound. The GBP ended March with its biggest monthly gain in four months of 2.6%. It was up 2.1% against the USD in Q1.

The YEN gained around 2.4% against the dollar in Q1. It had started the quarter looking quite vulnerable as the Fed continued to raise rates. However, the decline in the USD in March due to concerns over the US banking sector, helped the Yen to recover lost ground. 


Bitcoin +67.1% QTD
Ethereum +47.2% QTD

Note: As of 6:00 pm EST 31 March 2023

Cryptocurrencies rose through Q1 due to a more bullish sentiment overall in risk assets. 

What to think about in Q2 2023

There are a number of continuing and new risks to investors in Q2 2023 including the possibility of further banking weakness. 

Although a slowdown in global growth is expected, growth has surprised to the upside with higher than anticipated PMIs. However, there is still an expected drag on financial conditions following on from the March’s banking volatility that is likely to further tighten credit and lending conditions. This will hit small and medium sized businesses most of all and may start to impact labour market demand. Although Chinese growth is picking up, following on from the reopening of the economy, its manufacturing growth is still subdued.

Although headline US inflation is expected to fall further in Q2, wage growth, particularly in services, will keep core inflation well above the Fed’s target through Q2.  Whether or not the Fed will pause or pivot, will very much depend on how severe the impact of credit tightening from banking sector volatility is and whether the labour market continues to operate with only mild weakening. Recent banking sector volatility is likely to lead to a further tightening of bank lending standards, which could further slow growth in developed economies, possibly leading to a moderate recession over the course of the year. However, with better capitalised banks, a repeat of 2008 is unlikely.

Economic and Geopolitical Risk Calendar

The potential policy and geopolitical risks for investors that could may negatively affect corporate earnings, stock market performance, currency valuations, sovereign and corporate bond markets and cryptocurrencies include: 

10-16 April IMF/World Bank spring meetings. IMF and World Bank spring meetings will be held in Washington DC (US). Slowing globalisation and debt restructuring will likely be key topics of discussion. In the run up to the meetings, IMF Managing Director Kristalina Georgieva has said the world economy would expand at an average annual rate of around 3% over the next five years, the weakest projection for medium-term growth since 1990.

12-13 Apr 2023 G20 Finance Ministers’ and Central Bank Governors’ Meeting. G20 Finance Ministers and Central Bank Governors will meet in Washington DC. Discussion may include food and energy security, the growth in global debt, and enabling finance for the SDGs in poorer countries. 

16-18 Apr 2023 G7 Foreign Ministers’ Meeting. The meeting will take place in Karuizawa, Nagano, Japan.

28 April Bank of Japan meeting. The BoJ has a new leader, Kazuo UEda, and is looking likely to remove the yield ceiling on its 10-year bonds. There has been speculation that the BOJ will declare that its 2% price stability target is now realistically in sight, and will swiftly undertake the normalisation of its monetary policy by eliminating negative interest rates. This will likely lead to a flow reversal which may send markets into a tailspin. As noted by Bloomberg news, Japanese investors are the biggest foreign holders of US government bonds and own everything from Brazilian debt to European power stations to bundles of risky loans stateside.

3-4 May 2023 US Federal Reserve Monetary Policy meeting. The Fed held tight to its rate path in March, raising rates by 25 bps. It has now hiked its policy rate by 475 basis points since last March. Although headline inflation is dropping, core PCE is still high and this will likely still worry the Fed. What is clear is that the labour market is weakening which may help keep wage growth low. The Fed will likely be watching and waiting to see how much of an impact banking sector volatility had on the economy.

4 May 2023 ECB meeting and monetary policy decision. The ECB will continue to be data led and despite a downward trend in headline inflation across the Eurozone, core inflation remains stubbornly high. According to the ECB’s Chief Economist, it will need to raise interest rates again in May if inflation develops along the path seen in the bank's March economic projections. The market has priced in a 25 bps rise for the May meeting. 

4-5 May 2023 Shanghai Cooperation Organisation (SCO) foreign ministers’ meeting. AThe foreign ministers of SCO members will meet in Goa (India). Iran will attend the meeting as a member for the first time.

6 May 2023 Coronation of King Charles III, United Kingdom. The coronation marks a historic change to the UK monarchy and head of state. There is increasing pressure on the monarchy with more public calls for the removal of the King as head of state in some Commonwealth countries.

9-11 May 2023 The 42nd ASEAN Leaders’ Summit. The participants will discuss economic, political, security and sociocultural developments in Southeast Asian countries in Labuan Bajo, Indonesia.

11 May 2023 Bank of England Monetary Policy meeting and monetary policy report. The BoE raised interest rates 11 times in a row. Inflation is still running at 10.4%. The BoE’s chief economist, Huw Pill, has said, “monetary policy should focus on the inflationary impact of a shock at the 12 to 24 month horizon” due to the “long and variable lags” in monetary policy transmission. He said, “Although headline inflation is set to fall significantly in the course of this year owing to a combination of base effects and falls in energy prices, caution is still needed in assessing inflation prospects on account of the potential persistence of domestically generated inflation.”

11-13 May 2023 G7 Finance Ministers’ and Central Bank Governors’ Meeting. 

14 May 2023 Turkey General Election. As noted by Control Risks, opinion polls indicate that the opposition bloc could credibly defeat the ruling Justice and Development Party (AKP) in the elections. The election cycle is likely to be marked by personal attacks and allegations of misconduct against political opponents, as President Recep Tayyip Erdogan tries to hold on to power. Such attacks are likely to fuel social tensions and increased protest action in the coming months, though foreign firms are unlikely to be targeted.

19-21 May 2023 G7 Leaders Summit. Participants will try to find a common position toward Russia, The group also will be addressing the threat of climate change and the need to provide developing countries with additional financial aid to cope with the loss and damage caused by global warming.

4 June 2023 35th ministerial meeting of OPEC. OPEC market management policy will be reviewed by member states at this full ministerial meeting. 

14 June 2023 US Federal Reserve Monetary Policy meeting. Unless there are surprises to the upside on core inflation the Fed is likely to consider a less hawkish stance than in prior meetings.  However, the Fed will remain data dependent and will also be looking closely at transmission lags from previous rate rises and the knock on effect of March’s banking sector volatility on wider financial sector stability and areas such as the housing market.

15 June 2023 ECB meeting and monetary policy decision. Much will depend upon core inflation and how well jobs and economic growth are holding up given past rate hikes. If underlying inflation, a key worry for policymakers, continues to accelerate, it will strengthen the case for rate hikes.

22 June 2023 Bank of England Monetary Policy meeting and monetary policy report. The BoE will be watching core inflation data closely and, even though headline inflation will likely still be well above target, as long as it is within the predicted path, the BoE is likely to end its rate hike run.

DISCLAIMER: While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication. 

This article is provided to you for informational purposes only and should not be regarded as an offer or solicitation of an offer to buy or sell any investments or related services that may be referenced here.

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