Investment market update: December 2022

2022 ended with uncertainty and volatility that’s persisted for much of the year. Read on to find out what happened in December and how it affected investment markets.

Looking ahead, uncertainty is likely to be something investors will need to negotiate in 2023 too. As economies continue to struggle with high levels of inflation, Goldman Sachs CEO David Solomon warned that “bumpy times” were still ahead.

Keep in mind that volatility is part of investing and you should keep your long-term plan in mind when reviewing performance. You should also consider your risk profile and the investment opportunities that are appropriate for you.

UK

Inflation fell slightly in the 12 months to November 2022 to 10.7%. It’s led to hopes that inflation has peaked, but high levels are expected to persist in the first half of 2023. In response to inflation, the Bank of England (BoE) increased interest rates again, this time by 0.5% to 3.5%.

The soaring cost of living has led to strikes across the country, which has affected a range of services, from post to transport. Dubbed the “winter of discontent” by the media, figures from the Office for National Statistics (ONS) show that strike action is at its highest level for more than a decade. Around 417,000 working days were lost due to labour disputes in October.

One positive piece of data released in December was the GDP figure. It’s estimated that GDP grew by 0.5% in October after falling 0.6% in September.

However, experts have warned that the economy is still likely to fall into a recession. The Institute of Directors explained that the latest figure was most likely due to the extra bank holiday in September for the Queen’s state funeral, rather than the economy bouncing back.

Readings from S&P Global’s purchasing managers index (PMI) suggests that business output is falling. A reading below 50 indicates contraction.

• A “lethal cocktail” of Brexit, logistic challenges, high costs, and falling demand, means that the PMI for UK factories fell to its lowest level since April 2020, when the first wave of Covid-19 affected operations. The 46.5 reading suggests business is contracting.
• The reading for the service sector fell to 48.8 as cost of living challenges hit discretionary spending.
• The construction sector is still growing, although it is near the 50 mark, which indicates stagnation due to the rising cost of borrowing affecting the industry.

Businesses are also struggling to find the talent they need. According to an ONS survey, a third of UK businesses with 10 or more employees said they are experiencing a shortage of workers. This rises to 54% in the human health and social work sector.

While many businesses are suffering from falling demand, one bright spot was car sales. They increased for the fourth consecutive month. Industry leaders said a recovery for the sector was “within grasp” after November sales were 23.5% higher when compared to a year earlier.

US carmaker Ford also unveiled investment plans. It will invest an extra £125 million in its Merseyside factory to make electric vehicle parts. The move is part of the company’s zero-emission goals.

Europe

In a similar move to the BoE, the European Central Bank increased its base interest rate by 50 basis points due to inflation.

PMI data suggests that the eurozone is falling into a recession. Private sector output fell as demand for goods and services contracted. Job creation was also at its weakest level in almost two years as businesses are affected by uncertainty.

While manufacturing increased slightly when compared to the previous month. The PMI figures show it’s still in contraction as new orders fall.

This falling demand is affecting Germany, which is the largest economy in the eurozone. Exports declined by 0.6%.

USA

Statistics from the US paint a mixed picture. Like other economies, the US is facing high inflation, rising interest rates, and uncertainty.

PMI data suggests industries are contracting. For instance, the reading for the service sector fell from 47.8 in October to 46.2 in November.

However, job data suggests that businesses are still optimistic. The job market was positive, with 260,000 new jobs added in November. The unemployment rate also remained at 3.7% – an almost 50-year low. The figures indicate that businesses feel confident enough to invest in their workforce.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.