After a solid start to the year helped by falling inflation and hopes for an end to the global monetary tightening cycle, robust economic and employment data from the US economy suggest that inflation will take longer to reach central banks' targets. As a result, interest rates rose again during the month of February, affecting both debt and equity markets.

The S&P 500, Dow Jones 30 and IPC indices adjusted -2.61%, -4.19% and -3.31%, respectively, during the month. Similarly, debt markets suffered widespread declines as a result of rising rates, with the aggregate bond and investment grade corporate bond indices performing the worst, down -2.59% and -3.18%, respectively, almost erasing January's returns in their entirety.

Going forward, we expect volatility to continue due to the current uncertainty about the path of inflation. A faster decline toward inflation targets would be a positive catalyst for markets, while more resilient inflation would keep markets on an uncertain path. While risks remain, the current level of valuations compared to early 2022 positions markets less vulnerable to setbacks in 2023.

On the other hand, the European economies as well as the markets in that area have shown strength in the face of the damage caused by the war between Russia and Ukraine, which reached its first anniversary on February 24, still with no signs of a resolution to the conflict.

Finally, in the local market, the super peso has appreciated more than 6% year-to-date vs. the dollar, reaching levels not seen since 2018. Such strength is due to a dollar surplus in the Mexican economy, caused in part by a moderate current account deficit, attractive sovereign debt rates, record levels of remittances and foreign investments of USD 38B that alone triple such deficit.