Quarter in Review Q3 2022
- Quarter in review
- 28.09.23
Key themes
The third quarter began with a strong rally for equities and bonds on the back of falling commodity prices and expectations of a possible US Federal Reserve (Fed) policy pivot. However, from mid-August, this mood gave way to acceptance of tighter monetary policy for some time to come.
The commitment from central banks to continue raising rates caused global bond yields to rise to their highest levels in 10-12 years.
Weak global economic data and several profit warnings from large corporates added to the pressure on equities, as did fears over an escalation of the Russia/Ukraine conflict. By quarter end, global equities and bonds had fallen to new year-to-date lows.
Markets snapshot
The MSCI AC World equity index fell -4.7% (-0.4% in euros).
The US fell -4.7% (+1.7% in euros) as interest rate expectations rose on more aggressive guidance from the Fed.
The UK outperformed, falling -2.9% (-4.8% in euros) as the weakness in sterling supported overseas earners.
Japan also outperformed, falling -1.5% (-1.3% in euros), with the weaker yen supporting exporters as the Bank of Japan remains committed to maintaining low interest rates.
Emerging market equities fell -8.0% (-5.5% in euros). The Chinese market underperformed due to difficulties in the property market and restrictions remaining in place given the country’s ongoing ‘zero tolerance’ Covid-19 policy.
The Eurozone > 5-year bond index fell -6.9%. The German 10-year yield to 2.11%, having hit a high of 2.35%, as Eurozone inflation rose to a record high of 10.0% y/y.
The euro fell below parity to 0.9802 against the US dollar, as concerns rose over the outlook for European growth amid the continued deterioration in economic data and the surge in natural gas prices.
Commodities fell -10.3% (-4.3% in euros) on increasing concerns over the outlook for demand in the slowing growth backdrop. Brent oil fell -23.4%. European gas rose, although it was off the highs, where it had been up 233% compared to the end of June.
Gold fell -8.3% due to the stronger US dollar and higher US real yields.