The third quarter of 2022 was described as volatile for all asset classes. The report cited Bloomberg as describing 2022 as the biggest cross-asset sell-off since 1981, with stocks and bonds falling alongside hedge funds, global infrastructure, property and commodities. Almost every major stock index in the world had fallen by at least 20% since the start of the year. The MSCI World Equity Index fell 7.27% over the quarter and 26.69% for the year to date. US equities fell 5.28% in the quarter, euro area equities 3.96%, UK equities 3.84%, Japanese equities 1.73% and Chinese equities 15.16%, while Indian equities rose 8.31% and Brazilian equities rose 11.67%.
Inflation remained at or close to 40-year highs in developed countries and central banks continued to raise interest rates. Policy rates were 3.25% in the US, 1.25% in the euro area, 2.25% in the UK and 0.50% in Switzerland. Inflation was 8.30% in the US, 10.00% in the euro area, 9.90% in the UK and 3.50% in Switzerland. The report said that rising short-term US yields had strengthened the US dollar, tightening financial conditions elsewhere, and that a weak euro imported inflation into the euro area at a time of an energy shock. The 10-year US Treasury yield had risen from around 2% to around 3.6% over the year, while long-term inflation expectations remained around 2.5%.
Currency moves were large. The euro fell 6.52% against the US dollar over the quarter to 0.98 and sterling fell 8.34% to 1.12, with the report referring to the effect of the UK budget announcement near the end of the quarter, while the dollar rose 6.65% against the yen to 144.75 and 3.34% against the Swiss franc to 0.99. Gold fell 8.15% to USD 1,659.67.
The report also discussed the time lag with which monetary policy affects the economy, the inversion of yield curves in the US and other countries, the risk of policy error by central banks, and the effect of the energy shock on Europe going into winter.
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