CIO conversations Q1 2023

2023 was a busy quarter in both markets and policy. The market tone in early January was notably positive. Investors continued to digest 2022 data in developed markets that appeared to indicate inflation was slowing. Equities rallied, buoyed by the expectation that central banks would soon end the cycle of raising interest rates.

By early February, inflation fears had begun to resurface. Fed Chair Jerome Powell conceded that the rate setting committee may need to do more to slow the economy and re-accelerate the pace of interest rate hikes from 25 to 50 basis points. These worries were reinforced by January inflation data which showed core inflation, which excludes more volatile energy and food components, was remaining stubbornly high.

In a historical reversal, the market view on rates was shattered in early March by the collapse of Silicon Valley Bank (SVB), a US specialist in finance to the Venture Capital industry. A bank run followed, requiring US authorities to step in with deposit guarantees to stabilise sentiment, as unease had spread to the smaller regional US banks.

On a more positive note, in Europe, the economy’s prospects for 2023 were given a material boost by the continued decline in the price of natural gas. The European Union (EU) also pursued its RepowerEU commitments with an updated commitment to sourcing 42.5% of its energy from renewable sources like wind and solar, by 2030.  

The situation in the UK was much the same as in Europe, with inflation also being driven by the impact of Brexit, which has complicated supply chains for goods and restricted the flow of workers. On what was heralded as “Green Day” (March 30th), the UK Government launched multiple strategies including Powering Up Britain, the Green Finance Strategy, the Nature Markets Framework, the International Climate Finance Strategy and the UK 2030 Strategic Framework for Climate and Nature.

And on International Women’s Day, three years ahead of the December 2025 target, Financial Times Stock Exchange (FTSE) 350 companies reported that they now meet the 40% target for women on boards.