Monthly Market Review - February 2024
Global markets continued their February 2024 surge following January after a lull. The MSCI World Islamic Index closed the month up 3.13% on the back of strong corporate earnings in the U.S. and positive economic data. Bond investors’ ongoing caution is indicated by the Dow Jones Sukuk Index, which struggled to find stability and extending its decline with a -0.61% return for the month.
The Federal Reserve maintained its neutral monetary policy stance from January, signaling no rate hikes or cuts in the near future. The Fed's emphasis on data dependence and a 'wait and see' approach to policy adjustments led to a recalibration of market expectations, which were anticipating more immediate rate cuts. Consequently, the 10-year Treasury yield from its previous close of 3.91% to 4.25%, indicating that the bond market is cautious about Fed's reluctance to commit to a more accommodative monetary policy in the immediate term.
The US economy continued to show resilience. The labor market maintained full employment in January, with the unemployment rate remaining steady at 3.7%, surprising forecasts of a minor increase. The Consumer Price Index showed that inflation fell to 3.1% YoY, downfrom 3.4% in December. Core inflation, which excludes volatile food and energy costs, remained stable at 3.9%, suggesting that underlying inflationary pressures remain persistent despite the overall decline in headline inflation. However, retail sales experienced a greater than expected downturn, down 0.8% MoM, marking the lowest monthly figure since March of last year. While this may be a slightly weak report, adjusting for seasonality, retail sales were up 0.6% on a YoY basis.
Across the Atlantic, the UK showed signs of improvement as the CPI declined MoM by 0.6%. Core inflation, however, remains at a worrying 5.1% YoY despite declining 0.9% on a sequential basis. Producer prices deepened into deflationary territory, with a significant drop of -3.3% year-over-year, just as the UK Manufacturing PMI signals the 19th consecutive month of contraction. Retail sales, however, provided hope of a rebound with a 3.4% month-over-month increase, suggesting a potential revival in consumer confidence. In the Eurozone, like the UK, inflation declined MoM by 0.4% as both retail sales and manufacturing PMI indices showed continued signs of a slump. Both, the ECB and the BoE, maintained their hawkish stance on interest rates, reaffirming their commitment to keeping rates at restrictive levels until inflation exhibits a sustainable trend toward their long-term targets.
In Asia, China still presents a slow recovery. Deflationary pressures continue to haunt the economy with the CPI and PPI declining by 0.8% and 2.5% YoY respectively. Industrial output contracted for the 5th consecutive month with the manufacturing PMI falling to 49.1 in February. China's disappointing post-COVID recovery has raised doubts about the foundations of its economic model, increasing the clamor for further stimulus measures as consumers hold off spending, foreign firms divest, manufacturers struggle for buyers, and local governments contend with huge debt burdens. Expectations of further government stimulus, however, have pushed investor confidence leading to an 8.1% return for the Shanghai composite in February.
Looking ahead, investors should closely watch the interplay between inflation trends, central bank policies, and geopolitical developments. The markets are expected to remain sensitive to shifts in these areas. Investors should seek to remain invested through a well-diversified portfolio while shielding themselves from any shocks.
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As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.
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