If there was one expression that probably best sums up Q3 2022, it’s “expect the unexpected”. Soon after Britain mourned the death of Queen Elizabeth II, the chancellor revealed his much anticipated “mini-Budget”, which included a major shakeup of taxation.
As a result of the chancellor’s announcements, the value of the pound plummeted and the Bank of England (BoE) purchased long-dated Gilts in a bid to stabilise the UK bond market. This added to the stock market uncertainty that had been present for much of Q3, caused by the ongoing war in Ukraine, high inflation and fears of an economic downturn.
According to JP Morgan, overall, equities in the developed markets fell 6% in August and September, while global bonds fell 7%. Any hopes that interest rates might be cut were scotched when central banks around the world reaffirmed their commitment to fighting inflation, resulting in many increasing their rates.
UK
Inflation in Q3 remained significantly higher than the BoE’s 2% target. According to the Office for National Statistics, in August it stood at 9.9%, which was slightly lower than the 10.1% the month before.
As a result of this, the BoE announced two 0.5% increases to its interest rate over the quarter, taking it up to 2.25%.
In September, the chancellor’s “mini-Budget” resulted in the pound dropping to an all-time low of $1.03, and the BoE announcing a £65 billion bail out to save pension funds. Additionally, nearly half of mortgages were pulled by providers amid fears the BoE would raise interest rates further in the wake of the chancellor’s economic plan.
This, as well as fears of a possible recession, meant the FTSE 100 saw another turbulent quarter, finishing the period down overall.
Source: London Stock Exchange
Concerns around the impact of rising energy bills – even with the government’s energy price cap – and increased mortgage repayments weighed heavily on the retail, travel and home construction sectors in particular.
Data released in Q3 also suggested a slowdown of the UK economy. The Purchasing Managers’ Index (PMI) dropped from 49.6 in August to 49.1 in September, which points to a downturn as any reading lower than 50 means a contraction in activity.
There was some good news though, as unemployment fell to 3.6% in July, its lowest level since 1974.
Europe
The ongoing energy crisis, rising inflation and fears about economic growth in the eurozone continued to weigh heavily on shares. While every sector posted negative returns, the sharpest falls were seen in the communication services, real estate and healthcare.
Source: Euro Stoxx
The European Central Bank (ECB) raised its interest rate by an unprecedented 0.75% in September, taking it to 1.25%. The zone’s annual inflation rate was estimated at 10.0% in September, up from 9.1% the month before.
While GDP figures showed the eurozone economy grew by 0.7% quarter-on-quarter in Q2, the EU’s economic situation deteriorated in Q3 according to the PMI business survey. In September it came in at 48.2, the third consecutive month below 50.
US
The US economy has already recorded two consecutive quarters of negative economic growth. Despite this, most economic data published in Q3 suggests the US economy remains resilient, especially when it comes to its labour market.
According to statistics, 315,000 payroll jobs were added across the US economy in August and job openings stuck at around 11 million. Furthermore, many households have seen income gains, although inflation continues to be a concern.
A report by CNBC reveals that the core personal consumption expenditures (PCE) price index rose to 4.9% in August from 4.7% the month before. This means that the headline rate of inflation rose more quickly than expected.
US equities fell in Q3, with telecoms, media stocks and real estate providing the weakest performance. There were hopes in July that the Federal Reserve (Fed) may cut interest rates in 2023 due to concerns about slowing growth, although these were dashed in August during the Jackson Hole summit of central bankers.
There, the Fed reaffirmed its commitment to fighting inflation, resulting in equities taking a downturn in the second half of Q3. The Fed then raised its rate to between 3%–3.25% in September.
Asia
Equities in Asia provided weaker performance in Q3 thanks to investor fears over rising inflation, higher interest rates and a global economic slowdown. Furthermore, the war in Ukraine and tensions between China and Taiwan also added to Q3’s weaker returns.
China’s index market struggled most during the quarter despite data showing that its factory activity expanded in August. This was largely driven by concerns about rising interest rates as countries around the world tried to bring soaring inflation under control.
India ended Q3 in positive territory, although fears about interest rate increases by the US’s Fed weakened sentiment towards the end of the period. After rising through July and August, the Japanese stock market fell in September to end Q3 down 0.8%.
Japan’s GDP was estimated to show a quarter-on-quarter annualised growth rate of 2.2%, slightly below expectations.
Get in touch
If you need advice on any aspect of our Q3 investment update, please get in touch. If you would like to discuss how investing might benefit your wealth, or discover how we might be able to help your finances, email admin@stonegatewealth.co.uk or call us on 01785 876222.
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.
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