Global equity markets ended 2022 in negative territory as investors took stock of a torrid year and looked ahead to the prospect of slowing global growth and persistent inflationary pressures. During December, central banks in the US, the eurozone, the UK, Canada, Switzerland, Mexico and Norway raised interest rates.
- The US federal funds rate rose to a range of 4.25% to 4.50%
- The ECB intends to start cutting its balance sheet from March 2023
- China relaxed its strict Covid-19 controls
Slowdown in 2023: global equity markets ended 2022 in negative territory as investors took stock of a torrid year and looked ahead to the prospect of slowing global growth and persistent inflationary pressures. During December, central banks raised interest rates in the US, the eurozone, the UK, Canada, Switzerland, Mexico and Norway. China announced an easing of its strict Covid-19 restrictions, raising hopes that the country’s economy would reopen fully, but also triggering concerns that the move could spark a fresh wave of infections around the world.
“We’re not slowing down. We’re in for the long game” (ECB President Christine Lagarde)
US rates rise again: the Federal Reserve raised its key federal funds rate for a seventh time this year to a range of 4.25% to 4.50%, but moderated the pace of its tightening by implementing an increase of only 50 basis points, rather than the 75 basis points seen in the previous four rises. Inflationary pressures in the US continued to ease during November , falling from 7.7% year on year in October to 7.1%. The Dow Jones Industrial Average Index fell by 4.2% in December and by 8.8% over 2022. Meanwhile, the S&P 500 Index fell by 19.4% over 2022, experiencing its worst calendar year performance since 2008. Elsewhere, having finished 2021 at 1.51%, the yield on the ten-year US Treasury Bond ended 2022 at 3.8%.
ECB plays the long game: the European Central Bank (ECB) raised its key interest rate by 50 basis points to 2% and intends to start cutting its balance sheet by €15 billion per month between March and June. Policymakers warned that they expect to continue to tighten rates “significantly” in order to dampen inflationary pressures; inflation is expected to remain above the ECB’s 2% target until 2025. ECB President Christine Lagarde commented: “We’re not slowing down. We’re in for the long game”. The Dax Index dropped by 3.3% in December and by 12.3% over the year.
Yen strength: the yen rose to its highest level against the US dollar since early August during December following the Bank of Japan’s unexpected adjustment to its yield curve control policy. The central bank opted to widen the range within which long-term bond yields are allowed to move from 25 basis points on either side of its 0% target to 50 basis points. The Nikkei 225 Index fell by 6.7% during December and by 9.4% over 2022.
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