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Updated: Mar 28, 2023

A difficult 2022 was rounded out with a negative month in both equities and fixed income. There was perhaps some tax loss harvesting in the US before the end of the year. Japan surprised the market with an increase in their allowable yield target from 0% to 0.5%. China signaled an end to the Covid Zero policy.

Market Performance (GBP)

MSCI World Index - -4.85%

S&P 500 - -5.76%

FTSE 100 - -1.80%


US Inflation Falling Further - Peak Is In?

US inflation (7.1%), UK inflation (10.7%), and EU inflation (11.1%) remained high for November (released December) but these are backward looking measures and are trending in the right direction for all three economies. Cooling housing market inflation is helping to bring inflation down in the US.

BOJ Raises Yield Limit To 0.5%

In what is widely considered a precursor to the end of yield curve control, the Bank of Japan (BOJ) lifted the range that Japanese bonds will be tolerated to trade in from 0% to 0.5%. The move caused a slight strengthening of the Yen. Japan is one of the worlds largest fixed income purchasers and any increase in yields in Japan could impact the US treasury market as well.

Central Bank Hike Once More

The Fed (+0.5% to 4.25%) and the BoE (+0.5% to 3.5%) both hiked again in December. The consensus is that hiking will slow in 2023, with a significant pause in H2 2023. This should give time for the 'long and variable lags' to feed through into the economy.

Covid Zero Ends In China

After the confirmation of President Xi as CCP leader in October, China has now announced an end to the Covid Zero policy. While this has proved a boon for Chinese stocks, the impact on Chinese people (where many are not vaccinated) remains to be seen. For markets, the news is goof as China is one of the world economies main sources of economic growth and demand.

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