What you need to know
Markets eased their way to the end of a difficult year which has been dominated by the effects of Russia’s invasion of Ukraine, persistent COVID-19 issues in China and the monetary policy implications of sticky inflation across many countries, most notably the US. As of Thursday’s close, the MSCI World equity index was heading for a fall of about 18% for the year while the JP Morgan Global Government Bond Index was off by more than 17%.1 Among major stock indices, the Nasdaq tech benchmark showed the steepest decline, down by more than 32% for the year. Our outlook is to see inflation retreat towards central bank targets in 2023, against a backdrop of soft global growth before a slow recovery emerges in 2024.
Around the world
Russian President Vladimir Putin signed a decree that will ban oil sales to countries abiding by a $60-per-barrel cap on Russian seaborne crude. The decree, which includes a clause that would allow Putin to set aside the ban in special cases, takes effect from 1 February and is slated to last five months. The cap, supported by G7 countries, the European Union and Australia, was established from 5 December as a response to Russia’s ongoing war in Ukraine. Oil prices had edged higher as markets weighed the news, but dropped back as fears emerged over the impact of a COVID-19 surge in China after restrictions were lifted.
Figure in focus: ¥16trn
The Bank of Japan (BoJ) said unscheduled bond purchases last week brought total purchases to around ¥16trn in December, close to the monthly record set in June, as it continues with a policy aiming to improve market functioning. A summary of opinions from the BoJ’s December meeting showed policymakers reaffirmed the need to keep ultra-low interest rates as well as revealing discussions behind the bank’s surprise tweak to its yield curve control. Meanwhile, Japan’s factory output in November fell for a third consecutive month, down 0.1% from the previous month on the back of weak global demand – although the drop was smaller than consensus forecasts.
Words of wisdom
Blue carbon: The carbon stored in the soil or vegetation around coastal areas. These ecosystems, often large areas of mangroves or seagrass, can store carbon at around four times the volume of a tropical forest on land, according to the World Wildlife Fund for Nature. They can also serve as vital support for biodiversity and provide protection and income for local communities. This year’s AXA IM Research Award was granted to Dr Ana Queiros, of the UK’s Plymouth Marine Laboratory, for her work on ocean management and the development of blue carbon as a nature-based solution in the fight against climate change.
What’s coming up
A series of Purchasing Managers’ Indices (PMI) are released during the week, including official manufacturing, services and composite data for the Eurozone and US, and private Caixin data for China. The minutes from the most recent Federal Open Market Committee policy meeting are published on Wednesday. November trade data for Germany, Canada and the US follow on Thursday, alongside December consumer confidence figures from Japan. The first estimate for Eurozone inflation in December arrives on Friday.
[1] Source: FactSet data as of 29/12/2022. Performance is in US dollar terms.
Disclaimer
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Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.