Quarterly Market Round-up
Flash Stats - Q3 2022
12 Oct 2022 - Estimated reading time: 2 minutes
In our regular market round-up, we take a look at what's happened in Q3 2022.
Investors suffered further losses in the third quarter of 2022, with global equity and bond markets falling as central banks turned increasingly hawkish in a bid to combat persistent inflation pressures. UK government bonds and sterling underperformed as markets questioned the credibility of the government’s unfunded fiscal package.
Some of the headlines in Q3 2022 include:
- Higher current and forecast inflation, and subsequent expectations of tighter monetary policy, are weighing heavily on consumer and business sentiment, with growth forecasts continuing to see downwards revisions. Recessions are now forecast in several key European economies and the US economy also expected to slow substantially, increasing global recession risks.
- The global manufacturing Purchasing Managers' Index weakened over the quarter as output and new orders lost ground; suggesting that global industrial production is slipping into recession. Surveys in the US remained at a level consistent with expansion (just), whereas European and UK surveys fell to a level consistent with contraction, whilst also pointing to an acceleration in cost and inflation pressures.
- Year-on-year headline CPI inflation is running at 9.9%, 8.3%, and 9.1%, in the UK, eurozone, and US, respectively. Of more concern to central bankers, core measures are also well above target, at 6.3% in the UK and US, and 4.3% in the eurozone. Furthermore, year-on-year wage growth in excess of 5% year-on-year in the US and UK is adding to core inflation pressures. Energy price interventions by European governments will limit the near-term peak in headline inflation, but will also support aggregate demand, potentially generating greater medium-term inflation pressure. Inflation is forecast to moderate in 2023 but remain well above target in most major economies.
- Growing concerns about sustained high inflation were met with aggressive messaging and action by central banks. The Fed raised interest rates by a cumulative 1.5% p.a. in Q3, while the Bank of England and the ECB raised rates by a total of 1% p.a. and 1.25% p.a., respectively. Markets have also moved to price in a much more aggressive path for interest rates, with rates now expected to reach 4.5% p.a., 3.5% p.a. and 5.8% p.a. by next year in the US, Europe, and UK, respectively. UK 10-year implied inflation, rose 0.4% p.a. to 4.0% p.a. Equivalent US implied inflation fell 0.2% p.a., to 2.2% p.a.
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