Markets in the third quarter: Goldilocks’ tale turns into a nightmare


  • Global stocks shed another $9 trillion on course for annual decline
  • King dollar crushed everything below
  • Central Banks Trigger Third Great Bond Bear Market
  • Oil cut by recession angst, more pain on Wall Street expected

LONDON, Sept 30 (Reuters) – If global market investors thought 2022 couldn’t be more painful or unpredictable, the past few months have certainly proven them wrong.

Another $9 trillion wiped out global stocks, oil fell over 20%, historic bond losses, war and things got so awful in Japan and Britain in the G7 these last weeks that the authorities had to intervene.

As central banks fearful of inflation race to raise borrowing rates, there have been nearly 300 interest rate hikes in the past year.

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It looks like those good times of the golden loop – where markets rally as economies move to the right temperature – are definitely over.

BofA analysts liken it to a “Cold Turkey” and accuse it of having caused the third “Great Bond Bear Market”.

They calculate that the losses of more than 20% suffered by investors in public debt in the last year are now comparable to those of the 1920s and 1949 after the First and Second World Wars, and the rout of the Great Depression. of 1931.

The combined collapse of global stock and bond markets means that global market capitalization has been reduced by more than $46 trillion.

“2022 at a glance: Inflation shock has caused rate shock which now threatens recession shock and credit event,” BofA analysts said, explaining that peace, globalization and easy money were being replaced by an “inflationary era of war, nationalism, fiscal panic, hardening, high rates, high taxes”.

Global markets in 2022

This quarter saw a period of optimism when the MSCI index of global equities of 47 countries rebounded by 10% between July and mid-August. But the wrecking ball of the Fed’s rate hike soon returned, and this index has plunged 15% since, leaving it down 25% and $18 trillion year-to-date.

Rising expectations of a recession, along with plans by the West to stop buying Russian oil, saw Brent prices fall 20% after their buoyant start to the year. Although Europe’s looming energy crisis means its natural gas prices are up 18% since July, by the end of August the statistic was nearly 140%.

Global government bond yields soar

The Wall Street bear market, meanwhile, is now 268 days old and has seen a decline of about 24% from peak to trough. This is still relatively short and shallow compared to past declines.

Since 1950, the average U.S. bear market has lasted 391 days with an average fall of just over 35%, according to Yardeni Research and banks from BofA to Goldman warn of the traditional end-of-season ‘Santa Claus rally’. ‘year. be cancelled.

“The complacency towards central banks is gone, it’s gone. But the complacency towards the macro situation, the geopolitical situation has not disappeared,” said Olivier Marciot, head of multi-investment. -assets and wealth management at Unigestion.

“You can just look everywhere, there is no ray of hope at the moment.”

Global equities post record year-to-date fall

KING DOLLAR

The only place to really take shelter this quarter, this year and for the year has been the dollar.

It was up another 7%, leaving it up 17% for the year against major global currencies. Against the Japanese yen and the British pound, its 20% and 18% are even more significant, putting these currencies on track for their biggest respective annual declines since 1979 and 2008.

Reuters Charts

The overall crypto market valuation has fallen to $940 billion from $2.2 trillion through 2022, though bitcoin hasn’t added much to its 60% fall since the start of the l year at least this quarter, and the ether was boosted by an eco-friendly software upgrade.

Surprisingly, no notable emerging currency rose this quarter. The Chinese yuan fell 7% to its lowest level since the global financial crisis and a number of Eastern European units fell another 10% as the war in Ukraine continues.

Ukraine itself has joined Sri Lanka in default and concerns are high in the currency and bond markets that Ghana and Pakistan are next.

Since the start of the year, $70 billion has leaked from hard-currency bond funds in emerging markets, according to JPMorgan estimates, and the MSCI Emerging Markets Equity Index (.MSCIEF) will see its fifth straight quarter of losses and establish its longest bear market, Morgan Stanley said.

Hesitant growth, the fallout from a prolonged real estate crash and a strict COVID policy mean that the Chinese and Hong Kong indices (.HSI) are down more than 15% and 20% for the third quarter in what is their worst quarter in seven and eleven years respectively.

Remarkably, the Turkish stock index (.XU100) is now up 70% for the year after another 30% rise, albeit with the pound down 10% for the quarter and almost 30% for the year, it is feared that everything will collapse.

“The trigger, the reason and the cause of all of this were interest rates and inflation skyrocketing,” said Robeco’s head of emerging markets equities, Wim-Hein Pals, of the fall. massive market this year. “Money is no longer free”.

Emerging currencies are crushed

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Additional reporting by Tom Wilson and Karin Strohecker; Editing by Toby Chopra

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