Market review – December 2022

As we approach the festive season, are we starting to see some positive news on the economic front? November saw global equities generally build on the positive returns seen in November. This meant, for the first time since last summer, equities saw consecutive months of gains. A lot of this positivity is on the hope that the pace of economic tightening is set to slow from central banks.

During November, the US Federal Reserve (Fed) raised their rates by a further 75 basis points to a range of 3.75% to 4%, which was the sixth consecutive increase. This is the highest level since January 2008. However, later in the month the Fed Chair, Jay Powell, indicated that the next rise would be 50 basis points. This was positively received by global equities markets. The Dow Jones Industrial Average Index saw a 5.7% increase during November.

There are some tentative indications that inflationary pressures are showing signs of peaking. The latest data in the US showed that inflation in October slowed to 7.7%, less than the anticipated 8%, representing the lowest level since January. In Europe, the rate of inflation in the eurozone saw its first fall since July 2021, easing from 10.6% in October to 10%. However, here in the UK, the annualised rate of inflation rose from 10.1% in September to 11.1% in October.

The Bank of England (BoE) raised interest rates by 0.75% to 3% in November, which was the most significant single hike since 1989.  The UK does, however, appear to be economically steadier following the volatility caused by the previous Prime Minister and Chancellor. In November, the Chancellor, Jeremy Hunt, announced £30 billion in spending cuts and £25 billion in tax rises during his autumn statement. The BoE has indicated that further rate rises will follow, but it is expected these won’t be as severe as was predicted a couple of months ago.  Indeed on 15 December, the BoE raised interest rates again to 3.5%.

It is very probable that the UK is already in a recession. The UK economy contracted by 0.2% in the third quarter, which followed a 0.2% increase in the second quarter. It is believed that this recession could last until the middle of 2024. During November, the FTSE 100 Index rose by 6.7%, whilst the FTSE 250 Index climbed by 7.1%.

The German economy is also expected to fall into a recession, with a predicted contraction of 0.3% in 2023, according to the Organisation for Economic Co-Operation & Development (OECD). Despite this prediction, the German Dax Index rose by 8.6% by the end of November.

One of the big talking points of the last month was China’s continued controversial zero Covid policy, which saw protests in many of their cities. This had a negative effect on investment sentiment both towards their economy and the wider global prospects. In Japan, their economy has seen a contraction of 1.2% year on year in the third quarter. Much like many global economies the rising prices have seen consumer spending curbed. In November, the Nikkei 225 Index increased by 1.4%.

It just remains for me to wish you all a very Merry Christmas and a Happy New Year. As ever, if you ever need to speak to us, please do not hesitate to contact us. We look forward to working with you in 2023.