Stock markets closed out a tumultuous year with gains in the fourth quarter. Asian stocks were boosted by China’s relaxation of its zero covid policy, while European stocks also rose sharply. Government bond yields rose toward the end of the fourth quarter (meaning costs fell). This reflected some market gloom with primary central banks reiterating their plans to tighten financial policy, even as inflation showed signs of a pickup. Commodities rose in the quarter, driven by trading metals.
U. S. stocks U. S. stocks posted physically powerful gains in the fourth quarter, with much of the progress made in November. Investors balanced the Federal Reserve’s continued caution with indications that the speed of policy tightening would slow and symptoms that peak inflation could simply slow. Earnings were also strong in some sectors.
U. S. third-quarter annualized GDP stood at 3. 2 percent in December, higher than the current estimate of 2. 9 percent. Unemployment remains at 3. 7%. 263,000 jobs were added in November; The lowest number since April 2021. The most recent customer value index (CPI), from November, showed inflation slowing to 0. 1% (monthly) compared to October. However, inflation remains high, at 7. 1% year-on-year. In fact, the Fed’s last rate hike of the year was a reduced 50 basis points (bps) hike after 4 consecutive tightening moves of 75 bps. However, the official rate is expected to continue rising in 2023.
Most sectors grew in the quarter, a number that increased considerably. Energy stocks posted strong gains, with industry heavyweights Exxon and Chevron posting record gains in the quarter. Discretionary entry is a notable exception, with Tesla’s downfall having an oversized influence.
Euro zone stocks posted strong gains in the fourth quarter, outperforming other regions. Gains came from a variety of sectors, adding sensitive sectors to the economy such as energy, finance, industry and discretionary clients. More defensive portions of the market, such as commodities for customers, have lagged the broader market’s progress.
Stock gains were supported by hopes that inflation will peak in Europe and the United States. Annual inflation (measured through the harmonised index of customer prices) fell to 10. 1% in November from 10. 6% in October. The European Central Bank (ECB) raised interest rates through 50 base issues (bps) in December, a slower pace than its previous increases of 75bps. However, ECB President Christine Lagarde warned that the central bank is “not done” with raising interest rates. The ECB also showed its objective to avoid the replacement of maturing bonds.
The knowledge showed that the euro-dominated economy grew by 0. 3% quarter-on-quarter in the third quarter, compared with an expansion of 0. 8% in the second quarter. Forward-looking signals continued to imply a contraction, the rate of decline moderated. for December it was 48. 8, down from 47. 8 in November. (PMIs are based on knowledge from surveys of firms in the production and service sectors. A reading below 50 implies contraction, while above 50 implies expansion. )The mild climate for much of the period helped relieve some load pressures.
UK stocks rose in the quarter, helped in part by the country’s exit from the September crisis. Markets were volatile in September, with the former prime minister and chancellor delivering massive fiscal stimulus, with few major points on how they would be financed. Many of the policies announced in that September “mini-budget” were cancelled and new Chancellor Jeremy Hunt used the autumn declaration in November to promise that the country would tighten its belt in the future. His claims were supported by the budget and economic forecasts of the Independent Office for Fiscal Responsibility (OBR).
This message was in line with the fiscally conservative reputation of Rishi Sunak, who was appointed leader of the Conservative Party and, by extension, became the country’s new prime minister. Sunak’s past experience as chancellor also helped stabilize gilt yields and, consequently, interest rate expectations, which supported the locally oriented sectors of the UK stock market. The Bank of England’s resolve to slow down interest rate hikes has also helped those regions a lot since the mid-autumn lows.
More broadly, sectors sensitive to the UK’s equity economy outperformed other markets. This happened in the hope that the U. S. Federal Reserve would not be able to do so. The U. S. could “pivot” to cut interest rates by the end of 2023.
After emerging for a high of October and November, the Japanese stock market retreated in December. However, the overall decline in the fourth quarter remained positive at 3. 3% in yen. After weakening against the US dollar for a high of 2022, the yen changed direction since November, retreating to the degrees last seen in July and August.
In November, major Japanese corporations released quarterly effects for the July-September period. These turned out to be a number of false effects, especially for giant corporations that profit from the yen’s weakness. The confidence point of corporate control is evidenced by the record point of percentage buybacks that have been announced so far this fiscal year.
The other major event for investors in the fourth quarter was the Bank of Japan’s resolve to widen the band within which it holds 10-year bond yields. While investors identified such a substitution as a logical first step toward policy normalization, the timing of resolution came here as a surprise.
While the yield control policy update was not a de facto increase in interest rates, it was enough to lead to a sharp strengthening of the yen in December. The central bank’s resolution earlier than expected would possibly also reflect confidence that despite everything, Japan’s inflation rate is moving toward more sustainable positive diversity after decades of deflation.
The government was able to implement a really extensive additional fiscal package in the fourth quarter, through which it targets the incipient national recovery in 2023. There have also been positive developments with the lifting of restrictions on overseas travel effective October 11, adding a resumption of the Visa Waiver Program for many countries. The long-suspended domestic travel incentive program has also been revived.
Asia-Japan stocks posted gains forged in the fourth quarter, with nearly all index markets ending the era in positive territory. China, Hong Kong and Taiwan all saw strong expansion in the quarter, with percentage value expansion being strong in November after U. S. President Anna S. U. S. Joe Biden and Chinese leader Xi Jinping signaled their readiness for U. S. -China relations at an assembly ahead of the G20 summit in Indonesia.
The rebound in Hong Kong costs and Chinese inventories continued in December after Beijing eased pandemic restrictions that have hampered China’s economic expansion since early 2020. However, percentage costs did not continue in Taiwan in December, with persistent geopolitical tensions in interest rates and falls. demand for electronics (one of Taiwan’s main export products), which weakens investor confidence. South Korea’s inventories ended the quarter in positive territory after the country’s central bank raised interest rates. for China.
Thailand, the Philippines and Singapore also ended the quarter in positive territory. The announcement by the US Federal Reserve The U. S. government in the quarter that it planned to move to smaller rate hikes soon also boosted many Asian inventory markets during the quarter.
Emerging market (EM) stocks posted strong returns in the fourth quarter, helped by a weaker U. S. dollar. superficial and markets will begin to reduce the recovery. However, optimism faded in December, when the Fed reiterated its commitment to fighting inflation. the quarter. The MSCI EM Index performed in line with MSCI World.
Middle East markets underperformed the emerging market index as they were affected by lower energy prices. Qatar and Saudi Arabia were the main laggards. Yields in Indonesia were also negative. Brazil, where political uncertainty clouded the picture following the election of President Lula in October; and Taiwan.
China has outdone. Investors welcomed the easing of Covid regulations, which helped increase optimism that the economy will reopen faster than expected. Support to the housing sector also contributed to the positive sentiment. Latin American markets Peru and Colombia outperformed the broader index. South Korea and South Africa posted strong returns, the latter boosted by President Ramaphosa’s re-election as president of the ruling African National Congress (ANC), although allegations of serious misconduct and imaginable constitutional violations weighed on yields in December.
Poland and Hungary continued to recover from months of poor post-war performance in neighboring Ukraine, while Greece and Egypt also increased. Turkey, the most powerful index market, as the central bank continued to ease financial policy. Nine % in November but, aware of the emerging inflationary risks, which exceeded 85% in October, he announced the end of the existing easing cycle.
Markets ended the year on a combined note in the latest quarter. Government bond yields rose toward the end of the fourth quarter, reflecting some market gloom with the aggressive tone of some central banks, despite mounting evidence of slowing economic growth. The Federal Reserve (Fed) raised rates twice in the quarter, ending at 4. 5%. The Bank of England also announced two rate hikes, bringing the UK interest rate to 3. 5% at the end of the fourth quarter, while the Bank of Japan announced a replacement in its yield curve policy.
Credit spreads narrowed in the quarter due to heightened threat sentiment. The creditsssss spread is the difference in yield between similar adult-age bonds and other quality creditssss. and high-yield Creditsssss generated positive returns and outperformed government bonds in the quarter. High-yield bonds are more speculative, with a credit rating below investment grade.
The euro’s dominance has had the toughest year for inflation in its history, there were signs toward the end of the fourth quarter that there could be a respite, and the region’s latest symptoms point to a slowdown in headline inflation, helped by easing energy price pressures. However, the European Central Bank (ECB) continued to tighten financial policy conditions, maintaining its aggressive message and signaling long-term rate hikes.
The 10-year U. S. yield The U. S. yield rose from 3. 83% to 3. 88%, while the two-year yield rose from 4. 28% to 4. 42%. Germany’s 10-year yield rose from 2. 11% to 2. 57%. The UK’s 10-year yield fell from 4. 15% to 3. 67% and the 2-year yield fell from 3. 92% to 3. 56%, after the country’s new prime minister cancelled the maximum of his predecessor’s “mini-budget” proposals, which had been badly earned through the markets.
The recovery of the US dollar continued to slow in the fourth quarter. For the quarter as a whole, the dollar index lost just under 8%, although it ended 2022 up 7. 9% from a year earlier. Among G10 currencies, the New Zealand dollar and Norwegian krone posted the biggest gains against the U. S. dollar in the fourth quarter. The Japanese yen also rallied strongly in the quarter.
The benchmark convertible bond index, Refinitiv Global Focus, reported a 4. 0% gain in the quarter. The convertible bond universe remains growth-oriented. Faced with heavy tech benchmarks like the Nasdaq, convertibles perform well. Against the stock market as a whole, convertibles failed to show their classic bullish participation qualities. The number one convertible market remained sluggish and the overall market volume of new problems for 2022 marked a record annual low.
The S-index
Industrial metals were the best-performing component of the index, with particularly high values in the quarter for nickel, lead and copper. However, zinc and aluminum values fell in the quarter. Within the valuable metals, silver also made significant value gains, while the increase in the value of gold more moderate.
In agriculture, coffee and wheat costs fell, while costs of sugar, cocoa, corn and soybeans rose. In the energy sector, sharp increases in the costs of unleaded fuel and distilled heating oil helped offset a sharp drop in the costs of herbal fuels.
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