Many commentators point to the twelve months to December 2022 as being one of the toughest annual periods for the performance of the share market and the bond market for several decades. This was led by the severe sell-off in Government Bonds, aggressive tightening of most Central Banks’ official cash rate and the 33.1 per cent decline in the US-tech heavy Nasdaq Index.
Despite this, some share markets bounced in the December 2022 half-year, including the Indian Sensex (+14.8 per cent), the French CAC 40 (+9.3 per cent), the German DAX 30 (+8.9 per cent) and the Australian All Ordinaries Index (+7.0 per cent).
Many economies saw their inflation rate hit a 40 year high and this contributed to an aggressive sell-off in bond markets around the world. US ten-year bonds jumped from 1.51 per cent to 3.88 per cent after easily breaching 4.0 per cent.
Many Central Banks pushed their official cash rates up to levels not seen since the commencement of the Global Financial Crisis (GFC) in 2008, and another tightening or two could be on the cards in the near-term.
With the exception of the Reserve Bank of New Zealand (RBNZ), Central Banks, generally, dragged their feet in fighting inflation through tighter monetary policy. The Reserve Bank of Australia (RBA), for example, took an additional six months relative to the RBNZ to commence their tightening agenda.
That said, it seems likely that the very high levels of inflationary expectations are past their worst and markets are crossing their fingers for some reprieve in 2023.
Share markets were hard hit in the June 2022 half-year and the US market, led by the Nasdaq, and the Chinese Composite Index and the Hong Kong Hang Seng Index continued their decline in the December 2022 half-year.
The Australian All Ordinaries Index, which excludes dividends, was down 13.3 per cent for the six months to June 2022 and up 7.0 per cent for the six months to December 2022 for a total annual loss of “only” 7.2 per cent.
The pull-up effect from Resource stocks was beneficial, whilst rural Australia continues to enjoy excellent prices for livestock, grain and particularly land. A recession in many developed economies, led by the UK and Europe, has become the consensus view. I would expect many analysts to downgrade their earnings forecast for 2023.
We are currently seeing many countries’ consumer confidence indexes hitting multi-decade lows, despite exceptionally low unemployment rates and still reasonably low interest rates by the standards of the last 40 years.
One issue that is working against many economies is the level of debt many Consumers and Governments took on in the 14 years since the GFC, assuming the record-low interest rates would last forever.
While a lot of this negativity may have somewhat been anticipated by the share market, the companies’ outlook statements – accompanied by their December results – will make for interesting reading.
The biggest news on the commodities front was associated with the attempt by Russia to annex Ukraine, and the pressure this has placed on the prices of food, fuel, gas, electricity and fertiliser.
Fortunately, the price of oil, gas and wheat has come back substantially from the high levels recorded in the June 2022 half-year. Iron-ore closed the year at a solid US$115.50/ tonne.
Doctor Copper jumped from US$2.10/lb in the March 2020 COVID-lows to US$5.00/lb. in March 2022. It has since declined 24 per cent to US$3.82/lb., being a good bell-weather for global industrial activity.
The table below summaries the movements for the 6-months and 12-months across major indicies, commodities and currencies:
|31-Dec||30-Jun||31-Dec||6 months to||12 months to|
|% Change||% Change|
|US 10 Year Bonds||1.51%||3.02%||3.88%||0.86%||2.37%|
|German 10 Year Bunds||-0.18%||1.37%||2.57%||1.20%||2.75%|
|UK 10 Year Gilts||0.97%||2.27%||3.70%||1.43%||2.73%|
|Japan 10 Year Bonds||0.06%||0.22%||0.41%||0.19%||0.35%|
|Australian 10 Year Bonds||1.68%||3.58%||4.05%||0.47%||2.37%|
|Australian 11am Call||0.10%||0.85%||3.10%||2.25%||3.00%|