February 2023 ETF Insider: Outlook for Markets and Inflation Analysis | Page 3




Do not fight the Fed

Address 1 Poultry London EC2R 8EJ UK E : info @ etfstream . com W : www . etfstream . com

Welcome to the February edition of ETF Insider , the first ETF magazine dedicated to professional investors across Europe . Each month , we will produce analysis on a specific area of the market , be that thematics , liquidity or even cryptocurrencies while also providing expert insights into the latest trends taking place across the ETF ecosystem .

This issue will primarily focus on the outlook for markets over the next 12 months . When writing the introduction for the February 2022 edition of ETF Insider , I chose the headline ‘ Inflation , inflation , inflation ’ which seems to have appropriately summarised how the year played out . This year , what appears to be most interesting is the sanguine view markets have taken on the outlook for inflation and therefore , how the Federal Reserve will react in the process .
While Fed chair Jerome Powell and other central bank officials have attempted to give off hawkish signals by warning of higher interest rates , investors have appeared to ignore all statements . The market is now pricing in the US central bank to finish its hiking cycle in March with the funds rate at 5 % and , even more interestingly , is pricing in a 25-basis point cut at the end of the year ( p . 17 ).
The divergence between the Fed and the market is likely to come to a head in H1 as the inflation picture becomes clearer , however , it is a sign the market is currently ignoring the Fed ’ s warnings which has been a key driver of risk-on asset performance at the start of the year .
I assess what assets will perform well if there is a second spike in inflation towards the end of the year ( p . 7 ) – one of the worst potential outcomes for markets in 2023 – while ETF Stream ’ s Theo Andrew analyses how ETF investors are positioning ahead of the “ most anticipated ” US recession in recent history ( p . 17 ). The role of gold within the current market environment is examined by Titan Asset Management ’ s Jonah Levy ( p . 26 ) and ETF Stream ’ s Jamie Gordon looks at the key signals investors should consider when establishing if markets have hit a floor ( p . 22 ).
Elsewhere , keep an eye out for a thought-provoking piece from DWS ’ s Keshava Shastry on the potential introduction of T + 1 settlement and its potential impact in Europe ( p . 14 ) as well as the usual ‘ Education Corner ’ ( p . 12 ), ‘ ETF of the month ’ ( p . 13 ) and ‘ Fund Fights ’, where ETF Stream compares the strengths and weaknesses of similar ETFs ( p . 16 ).
Tom Eckett , Editor , ETF Stream
Editor Tom Eckett Senior Reporter Theo Andrew Reporter Jamie Gordon Columnist Anna Federova Head of Marketing Sophy Moyes Strategic Adviser David Stevenson Managing Director Sam Ridley
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