Macro Outlook


By The Investment Desk | 21 Oct, 2022

Q3 began with a glimmer of hope for markets. Expectations that the Fed could start to pivot (given concerns about slowing growth) translated into a significant rebound from mid-June lows.

By mid-August, the rally had come to a screeching halt: a high US inflation reading started to worry investors again, and on September 20th, Fed Chairman Powell signaled more rate hikes ahead for the rest of the year.

Subsequently, the Fed raised the federal funds rate by 75bp to 3.25% in September (the third consecutive 75bps increase). Both the ECB and the BoE followed suit and raised rates throughout the quarter.

All this sparked a bond and stock sell-off that lasted through the final days of the quarter. By quarter-end, all major stock markets were in bearmarket territory, and global bond yields were at their highest levels in years.

A remarkable development in Q3 was the closure of Nord Stream 1 (the main pipeline supplying gas to Europe from Russia) for maintenance in July. It came back temporarily before it was shut down again in early September, which increased worries over energy shortages across Europe this coming winter.

In the UK, Liz Truss became the new PM. One of her first decisions was the announcement of a fiscal package that would reduce fiscal pressure considerably. Investors questioned the credibility of the government’s fiscal framework, and both the GBP and gilt market promptly suffered significant losses. In order to preserve stability, the BoE was forced to intervene by buying long-dated gilts. This should calm markets in the short term but fails to provide structural support until some sort of backtracking takes place by Truss’ government.

To read the full AndPapers Q4 2022 click here

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