Global stocks retreated after major central banks raised interest rates and warned of further increases to come in the fight to tame inflation.

Global bonds also sold off after the Bank of Japan amended its yield curve control policy. The news followed earlier comments from Fed chair Jay Powell who said there was “more work to do” in taming US inflation, while ECB president Christine Lagarde said it was “not done” raising rates.

During 2022, surging inflation, aggressive interest rate rises and the war in Ukraine caused global stocks and bonds to record the weakest annual returns since the global financial crisis.

The IMF predicted that one-third of the global economy would fall into recession in 2023

UK

The FTSE 100 rose 1.6% over the two weeks. The index provided a rare bright spot in 2022, closing the year slightly higher, helped by its heavy weighting towards energy, miners and pharmaceutical companies. However, the FTSE 250 of mid-size, domestically focused UK companies fell sharply.

UK GDP shrank 0.3% over the third quarter, a downward revision from the initial 0.2% contraction.

US

The S&P 500 slid 0.3% over the fortnight, while the tech-heavy NASDAQ dropped 2.4%. Tesla and Apple were hit by concerns over disruptions to their China manufacturing operations given the soaring number of COVID-19 cases, while chipmaker Micron Technology announced plans to axe 10% of its workforce citing weaker demand.

Over 2022, the S&P 500 lost 19% while the NASDAQ tumbled 33%, marking the worst annual performance for both indices since 2008. Tesla lost almost two-thirds of its value over the year, as did Facebook owner Meta, while chipmaker Nvidia halved in value. Apple and Microsoft dropped almost 30%, while Google parent Alphabet fell nearly 40%.

The US economy grew an annualised 3.2% on quarter in the third quarter, stronger than an earlier estimate of 2.9%.

The core personal consumption expenditure price index, the Fed’s preferred measure of inflation, cooled to an annual rate of 4.7% in November, down from 5% in October.

The Conference Board’s index of US consumer confidence surged to an eight-month high of 108.3 in December, up from 101.4 in November.

Europe

The FTSEurofirst 300 closed the two-week period unchanged.

Over 2022, the EuroStoxx 600 fell 13%, its biggest annual loss since 2018.

Japan

The Nikkei 225 dropped 5.2% over the two weeks as the Bank of Japan appeared to take the first steps to tightening monetary policy.

The Bank of Japan amended its yield curve control policy, saying it would allow 10-year bond yields to fluctuate by plus or minus 50 basis points (bps), instead of the previous 25 bps. It kept overnight interest rates at -0.1%. The yield on the 10-year JGB shot up to 0.46% on the news, its highest since 2015, while the yen rallied, and shares sold off.

Japan’s core inflation rate rose to a near 41-year-high of 3.7% cent in November.

Pacific ex Japan

China’s COVID-19 cases and deaths surged as the authorities continued to ease restrictions, slashing testing and quarantine requirements and retiring contact-tracing systems. China’s National Health Commission said it would drop quarantine requirements for inbound passengers in early-January. Ahead of the key New Year holiday period, a growing number of countries, including the US, Japan and several European nations, have announced that they will require negative Covid tests for air passengers travelling from China.

Instead of focusing on zero-COVID, China now appears to be emphasising the importance of implementing policies to support consumption and industries including technology and housing.

The NBS Composite Purchasing Managers’ Index (PMI) Index dropped to a 34-month low of 42.6 in December from 47.1 in the previous month. The NBS Manufacturing PMI fell to 47.0, from 48.0 in November, while the Non-Manufacturing PMI dropped sharply to 41.6 in December from 46.7 a month earlier as COVID-19 cases soared after Beijing abruptly eased its tough anti-virus policy.

Emerging Markets

Turkey’s stockmarket soared in 2022, recording the strongest gains globally, despite inflation reaching 85.5% as domestic investors use stocks as a hedge against inflation. President Recep Tayyip Erdogan raised minimum wages by 55% in order to boost his party’s popularity ahead of elections next year.

Russia’s MOEX plummeted 44% in 2022 as the Russian invasion of Ukraine and consequent sanctions by Western countries triggered an investor’s exodus. Vladimir Putin signed a decree banning oil sales under contracts that comply with the $60 price ceiling imposed by Ukraine’s western allies. However, evidence emerged that Russian crude oil is being shipped to India on tankers insured by western companies.

Bonds

The yield on the 10-year US Treasury bond climbed 38 bps over the two weeks to close the year at 3.89%. 10-year US Treasury yields started the year around 1.5%.

The yield on the 10-year German Bund rose 41 bps over the fortnight to close at 2.56%, while the 10-year UK Gilt yield increased 34 bps to 3.66%. Yields for both started the year at -0.2% and 1.0%, respectively.

The 10-year JGB yield closed the year at 0.41%, having touched 0.5%, its highest point since mid-2015, after the Bank of Japan amended its yield curve control policy.

Commodities

Commodity prices were mixed over the year, although the broad S&P GSCI Index rallied 9%, helped by gains from energy and agriculture prices.