Data source: Bloomberg

After a tumultuous year, the final quarter of 2022 at least brought some relief.

Value stocks have significantly outperformed growth stocks, both this year and over the quarter, explained by the high starting valuations of the first ones, some growth disappointments, and the effect of rising interest rates. 

 Sources: JP Morgan, Schröders, Bloomberg.

In the US

• US equities made robust gains in Q4, with much of the progress made in November. With hopes that the pace of policy tightening would slow down after signs that inflation was cooling, there were also very strong corporate earnings in certain sectors.
• Most sectors rose in Q4. Energy stocks posted exceptional gains, with sector heavyweights Exxon and Chevron cashing in record profits in the quarter.
• Consumer discretionary was a notable exception, with Tesla’s impressive decline dragging down the sector.

In the Rest of the World

• Asian equities ended the period in positive territory. China, Hong Kong and Taiwan all achieved strong growth over the quarter, with gains particularly strong in November after US President J. Biden and Chinese leader Xi Jinping signified a desire to improve US-China relations at a meeting ahead of the G20 summit.
• The recovery in China continued in Dec. after Beijing loosened its pandemic restrictions that have constrained China’s economic growth since early 2020. However, the share price rally didn’t continue in Taiwan, with ongoing geopolitical tensions.
• The Middle East markets underperformed the EM index as they were impacted by weaker energy prices.

In the US

• The Fed raised rates twice during the quarter, ending at 4.5%. 
• The latest CPI – for November – showed inflation slowed to 0.1% (month-on-month) versus October. Inflation remains elevated however, at 7.1% year on year.
• Consequently the Fed’s final rate hike of the year was 50 bps after four consecutive 75 bps tightening moves.
• The policy rate is, however, expected to continue to climb in 2023.

In the Rest of the World

• The main event in Japan was the decision by the central bank to widen the range of the 10-year bond yield moves. Although such a change had always been recognized as a logical first step towards policy normalization, the timing of the decision was a complete surprise.

• Even if the change in yield-control policy is not a de-facto interest rate rise, it was still sufficient to drive a sharp strengthening of the yen in Dec. Investors may have also hoped that Japan’s inflation rate is finally becoming more sustainable after decades of deflation.

• The US dollar’s rally continued to slow into Q4. Across the quarter, the dollar index lost just under 8%, though ended 2022 higher than a year ago at 7.9%.
• Among G10 currencies, the New Zealand dollar and Norwegian Krone made the strongest gains against USD in Q4.
• Having weakened against the US dollar for most of 2022, the yen reversed direction from November, returning to levels last seen in July and August.
• Cryptocurrencies have been under pressure after the collapse of major exchange FTX. 2022 marked the start of a new “crypto winter,” with high-profile companies collapsing across the board and prices of digital currencies crashing spectacularly. Some believe in a big rise in Bitcoin prices in 2023 being the year preceding the next Bitcoin halving (in 2024).

• The S&P GSCI Index recorded a positive performance in the fourth quarter, with higher prices in industrial and precious metals offsetting weaker prices in agriculture.

• Industrial metals was the best-performing component of the index, with sharply higher prices in the quarter for nickel, lead and copper. Zinc and aluminium prices, however, fell during the quarter.

• Within precious metals, silver also achieved strong price gains, while the rise in the price of gold was more muted.

• In agriculture, coffee and wheat prices fell, while prices for sugar, cocoa, corn and soybeans gained.

• Within energy, strong price gains for unleaded gasoline and heating oil helped to offset a sharp decline in the price of natural gas.

Cathie Wood, head of Ark Invest

” Jerome Powell and the Federal Reserve are doing serious damage to the economy. While they’re focused on stopping inflation, I believes that we’re about to see massive deflation ! Will the fed change it’s mind? “

Byron Wien and 2 of his 10 Surprises of 2023

1. While the Fed is successful in dampening inflation, it over-stays its time in restrictive territory. Margins are squeezed in a mild recession.

2. Despite Fed tightening, the market reaches a bottom by mid-year and begins a recovery comparable to 2009.

16-20th Jan: The World Economic Forum, Davos 

The World Economic Forum mission is to improve the state of the world by bringing together business and political leaders. Each year, a core number of ministers, heads of state, and business leaders meet at Davos for the forum.

What we can expect: 

Ursula von der Leyen, Sanna Marin, Olaf Scholz, John Kerry,… A record number of participants this year will head to Davos among whom the most famous ones in the world. +190 ministers and heads of state, as well as 1,500 business leaders.

The theme this year is “Digital safety: applying human rights in the digital world.”

Many digitally-related subjects, including cryptocurrencies, will be on the menu.

1st Feb & 21st Mar: FOMC Meetings 

The FOMC (Federal Open Market Committee) is the branch of the Federal Reserve that decides on the monetary policy of the United States. 

What we can expect: 

We will most probably see a continuum in interest rate hikes though softer than the ones in 2022 as inflation shows signs of cooling.

The actual interest of 4.5% is the highest level in 15 years

5th Feb: EU sanctions on Russian oil products imports come into force 

The EU has imposed a series of new sanctions against Russia in response to the military intervention in Ukraine. From February 5, 2023, no refined petroleum products may be imported from Russia to the EU. 

What we can expect: 

Russia made an estimated $18 billion on crude oil exports outside the EU and the UK in October-November alone. The oil import ban is likely to result in an increase in these exports, even if Russia’s revenues fall overall as a result of the ban. This is why a strong price cap is needed.

The most important way to cut Russia’s export revenues further will be to gradually drive down the oil price cap.

2nd Feb & 16th Mar: ECB Governing Council Meetings 

The Governing Council is the main decision-making body of the European Central Bank. They take decisions, adopt the guidelines, and formulate monetary policy for the euro area. 

What we can expect: 

As said in their last meeting, they plan to raise the three key ECG interest rates in their pursue of inflation fight. The current rates are between 2% and 2.75%.

19th Mar: Ukraine grain corridor deal up for renewal

In July 2022, an agreement to open a safe maritime corridor in the Black Sea was concluded in order to export Ukrainian grain. It was already renewed for another 120 days in November 2022. 

What we can expect: 

The deal will expire in March 2023. This deal is positive for both Russia and Ukraine as they cooperate financially in this exportation. It is expected that the deal will be renewed.