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2 January 2023
- The top remark of the year 2022 is just right after we felt that the control over the Covid situation was regained, the Russian Federation decided to invade Ukraine with claims of liberating key strategic parts of Ukraine.
- As a result, Europe suffered from lack of supply of natural gas from Russia and the prices of necessary energy commodities sky-rocketed causing the recent winter season to be one of the coldest of all.
- It’s no doubt that Europeans seem to be hit the hardest among all continents as, except for the uncomfortable consequence of the war, inflation joined the list.
- The U.S. came up with raising interest rates to battle the inflation, followed by other countries with major currencies.
Indices
After the rally in 2021, major US indices started to show signs of weakness and markets started to absorb the buyers and by now the markets are already in the markdown phase. Speaking in percentage terms, the benchmark index (S&P500) finished the year with a loss of 19.34% for 2022 which is the worst loss since the financial crisis in 2008. The Nasdaq (a.k.a. US100.cash) experienced an even bigger loss (-32.87%) and the Dow Jones reported a loss of 8.77%.
With central banks raising interest rates, it seems that the markets tend to react negatively sending the prices further down. Along with other indices, German DAX reported an annual percentage change of -13.09% and the STOXX 600 posted a loss of -12.90%.
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US30 -8.77% |
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US100 -32.87% |
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US500 -19.34% |
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GER40 -13.09% |
Commodities
Despite plunging or volatile markets, gold behaved the way most economists have predicted. They are considered as a safe haven where values are held and the prices of gold are also reflected.
On the other hand, the Ukraine conflict disrupted the energy markets causing the energy markets to be extremely volatile and closing the year of 2022 with an increase in prices. Logically, the energy sector is afterall one of the key areas to hold the most value in times of war and crisis.
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Gold -0.26% |
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Silver +2.58% |
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BRENT +11.41% |
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NATGAS +18.95% |
Forex
The king of all currencies has, once again, shown in October that it is still considered the top currency of all when its value peaked. The continual rise in interest rates perhaps has initiated the growth in value of the US dollar, however, the balance was restored once other central banks also increased their interest rates. Currency, which had suffered the lowest inflation, thus the rise in interest rates, was the Japanese Yen and as much as the market is stable there, it was also affected by the global events.
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EUR/USD -5.86% |
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USD/JPY +13.93% |
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GBP/USD -10.58% |
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USD/CAD +7.32% |
Macro
The most anticipated macroeconomic data for 2022 was, without any hesitation, the inflation rate. In the beginning of 2022, US inflation was 7% and by the end of 2022 it was already at 7.1% (with the 40-year record, maximum of 9.1% in June), with FED claiming that it will aim to meet the inflation rate of 2%. In the Euro Area, the inflation has not gotten under control yet as currently it holds an inflation rate of 10.1% compared with the beginning of 2022 when it was only 5%.
The interest rate which was employed to battle the inflation was raised to 4.5% in the US, whilst in the beginning of 2022 it was only 0.08%. In the Euro Area, the ECB raised interest rates from 0% to 2.5% at the end of the 2022.
What to watch out for this year
- Increases in interest rates may trigger an increase in unemployment which is one of the leading indicators of an upcoming recession. The current forecast is that the Eurozone is heading towards a mild recession in 2023.
- The US may avoid a recession according to the IMF, however, the growth in production in China has been hampered by the current Zero-Covid policy which will also negatively impact the global growth.
- The first two weeks will be the most significant weeks for the start of 2023 as major macroeconomic data are being released. The stance of central banks, interest rates, inflation and unemployment changes will be the key information to keep an eye on.
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