Your Q3 2022 market update

18 October 2022

If you are hoping to strengthen your portfolio and yield further profits this year, you might have been concerned by the volatility the markets have witnessed so far.

Last quarter, we reported significant downturns across global indices, including the US S&P 500 declining by 20%, and the UK FTSE All-Share experiencing a 4.6% downswing. 

The Russian invasion of Ukraine in February fuelled already-rising inflation across the west, contributing to a challenging market environment throughout 2022 so far. 

In Q3, market instability has improved somewhat compared with Q2, although this year’s volatility has not come to an end by any means. 

JP Morgan reports that developed market equities fell by 6% overall this quarter, while global bonds fell by 7%. 

The below table shows how global indices fared across Q3 2022. 

UK FTSE All-Share	Japan TOPIX	MSCI Asia ex-Japan	MSCI Europe ex-UK	MSCI Emerging Markets	US S&P 500
-3.4%	-0.8%	-13.7%	-4.5%	-11.4%	-4.9%

Source: JP Morgan

Read on to find out how markets performed around the world. 

UK

As you may already know, this quarter the Office for National Statistics (ONS) reported that UK inflation reached 10.1% in the year to July 2022, and slowed to 9.9% in August. In September, inflation climbed back up to 10.1%. 

The UK’s cost of living crisis has brought consumer confidence to an all-time low in September 2022, according to JP Morgan.

In response to this, the Bank of England (BoE) raised the base rate twice in Q3, bringing it to 2.25% in September. Two-year fixed mortgage rates passed 6% for the first time since 2008, the Guardian reports, leading some UK borrowers to feel concerned about debt repayments in the coming months.

With the UK FTSE All-Share index falling a further 3.6% in Q3 – a slowdown from 4.6% in Q2 – it seems efforts to curb inflation and stabilise markets are having a slow but noticeable effect.

Plus, alongside the ongoing economic landscape causing the cost of living crisis, former chancellor Kwasi Kwarteng’s controversial mini-Budget announcement worried investors. As a result, the pound dropped to an all-time low against the US dollar at the end of the quarter.

With hopes to stabilise the market, Reuters reports the BoE pledged to buy £65 billion in UK gilt bonds between 28 September and 14 October 2022. 

In more fortunate news, unemployment dropped to 3.6% in July, its lowest level since 1974. Private sector wage growth increased to 5.5%, a positive result for earners and investors in that sector.

For help managing your portfolio while UK markets are experiencing this series of shocks, speak to your financial planner.

US

Throughout 2022, the US economy has reported negative economic growth. Like in the UK, the University of Michigan’s consumer confidence survey dropped close to its lowest level in 50 years in Q3.

Despite rising concerns about economic growth among US forecasters, the Federal Reserve (Fed) remained steadfast in its decision to focus on slowing rising inflation, rather than growth.

In doing so, the Fed raised interest rates above 3% in September. Inflation growth slowed to 8.2% in the year to August 2022 – a meagre 0.1% decrease this quarter – sparking further concern about inflationary pressure across the US. 

Posting a growth slowdown of 4.9% in Q3, the US economy could be teetering on the verge of a recession, worrying both investors and consumers.

Nevertheless, the US labour market acted as an economic anchor in Q3, with 315,000 payroll jobs added in August alone, and job openings sitting at around 11 million. 

The booming labour market, combined with a 5.2% increase in hourly wages, has boosted household wage growth by 10%, or $1.04 trillion, in the year to the end of July 2022. 

Europe

As expected, in light of the ongoing war in Ukraine, every sector in the eurozone posted negative growth in Q3. 

In line with the BoE and US Fed’s movements, the European Central Bank raised interest rates in August and September 2022. Eurozone inflation increased to an approximate 10% in September – a 0.9% increase since August.

One major concern for European markets is the price of, and access to, energy. In September, Russian authorities completely cut off the flow of gas through the Nord Stream 1 pipeline, a key resource for many European countries.

However, surprisingly, this freeze did not raise energy prices in Q3, which actually decreased from €300 a megawatt in August to €200 in September. 

This successful lowering in energy prices across Europe can be attributed to multiple factors, including: 

• An increase in importing liquefied natural gas from outside Europe, taking Europe’s importation of Russian gas down to 9%, compared to 40% at the beginning of the war
• EU-wide proposals to save electricity over the winter
• EU-wide caps on gas prices being proposed
• Increased tax levied on profits from fossil fuel companies.

If you have concerns about how your European investments might be affected by the ongoing war, contact your financial planner for guidance.

Asia

In China, inflation remains low compared to many western countries, decreasing to below 2.5% in Q3. However, the Chinese economy remains fragile following the country’s continued zero-tolerance policy on Covid-19, as the threat of further lockdowns hangs over both investors and consumers.

In addition, ongoing political tension between China and Taiwan had an impact on investor sentiment this quarter. These factors, among others, contributed to a 13.7% drop in growth, according to the MSCI Asia (excluding Japan) index. 

In Japan, markets saw an uptick in July and August 2022, but joined the rest of the world economy in a downturn come September, leading negative growth to reach 0.8% in Q3. 

Get in touch

If you have any questions about how your investments might be affected by global market volatility, email info@depledgeswm.com or call 0161 8080200.

Please note

The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.