For most investors, 2022 has been a year to forget. Falling equities are bad enough, but with bonds also suffering from inflation and an aggressive response from central banks, fund managers often can’t hide. Flinty hedge funds can bet on the dollar and against government debt is among some celebrating a good year.
It has also been a year of extraordinary events, in areas as steady as UK government bonds and as wild as crypto. Here, Financial Times journalists have selected this year’s market charts, covering the biggest moments and the strongest trends.
The bond market is turning
Rising inflation and higher global interest rates have made for a miserable year for bond investors.
The 16 percent drop in Bloomberg’s global aggregate bond index — a broad measure of sovereign and corporate debt — was the worst performance in data since 1991, dwarfing all of the relatively rare annual declines in fixed income over the past three decades.
At the start of 2022, investors and central bankers are still grappling with the idea that unsustainable inflation can be tackled with modest increases in interest rates. But the commodity price shock resulting from the Russian invasion of Ukraine put paid to those who hoped. Inflation continued to rise surprisingly for most of the year, even as central banks in the US, UK and the euro zone began one of the fastest tightening cycles in history.
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The US 10-year Treasury yield – the benchmark for global fixed income – rose above 4.3 per cent in October, after starting the year around 1.5 per cent, helping a 20 per cent decline in global stocks. Yields have begun to fall back to 3.9 percent below the signs that US inflation has slowed – the latest data covering November shows a pullback to a relatively tame 7.1 percent at the annual rate, down from a peak above 9 percent earlier in the year. But investors will be looking for further confirmation that price pressures are easing in the US and elsewhere before ending the brutal bond selloff. Tommy Stubbington
Gilts are gone
Even in a year of unprecedented bond market volatility, the UK stood out. When Liz Truss, in her 44 days as prime minister, got her unfunded £45bn package of tax cuts in September, the gold market collapsed.
Investors were surprised not only by the scale of the planned loan, which is on top of a considerable bill for the anticipated household energy subsidies, but also by the decision to proceed without an analysis from the official budget watchdog.
Gilts prices cratered, sending yields rocketing further. This in turn led to a crisis in the UK pensions sector, where many liability-backed funds had loaded up on bets with low yields and were urgently needed to meet margin calls. As it dumped long-held gilts to raise much-needed cash, Britain’s government debt market entered a “self-reinforcing” downward spiral, according to the Bank of England, which was forced into an emergency bond-buying program. Swings in 30-year gilt yields on September 28, when the BoE first stepped in, were larger in one day than seen in most years.
Calm really returned to the gilt market only with the resignation of Truss and the ditching of his tax cuts by his successor Rishi Sunak. This is generally seen as a victory for the so-called bond vigilantes in chastening governments that have overstepped the bounds of responsible fiscal policy. Tommy Stubbington
NatGas: flame thrower
If there is one commodity that tells the story of 2022 it is natural gas, where Europe is learning about the geopolitics of energy.
Already dependent on Russia for 40 percent of its gas before Vladimir Putin’s invasion of Ukraine, the European Union scramble to replace the supply from Moscow has dominated all other markets.
The Russian government’s grip on gas supplies began before the invasion as Moscow sought to reassure Europe of what was to come. But it reached a peak this summer when exports on the main Nordstream 1 pipeline to Germany were cut.
In August, prices have risen above €300 per megawatt hour – or more than $500 a barrel in terms of oil – fueling the cost of living crisis, unmanageable inflation and even fears of an economic crisis.
But the market works. Europe has enough gas in storage to start the winter, sucking up its endless cargoes of liquefied natural gas while reducing demand. So far there are no direct disadvantages. Prices remain eye-wateringly high compared to the norm, but have more than halved since August.
Now, concerns have shifted to next season, with the big question being whether Europe can replenish its storage when Russia’s supplies are almost cut off. David Sheppard
A big nickel pickle from the LME
Nickel is usually a humdrum commodity used in stainless steel with a sexy growth story for use in electric vehicle batteries, but hit the headlines for all the wrong reasons in March.
The metal has traded at an average of $15,000 per ton over the years. But prices surged 280 percent to more than $100,000 a tonne in a day, as fears of sanctions in Russia – a major nickel producer – countered bets on lower prices by Tsingshan, the world’s largest stainless steel company that has been building it. big nickel project in Indonesia.
The historic price hike caused the London Metal Exchange to suspend and cancel billions of dollars worth of trading, sparking one of the biggest crises in the exchange’s 145-year history as profit-taking participants claimed nearly $500 million in damages and traders. asked why it was not finished yet.
The full extent of the crisis was later revealed in the LME’s defense against the lawsuit. The need for cash for trading will push clearing members into bankruptcy, which will cause the LME clearing house to default and even risk contagion in the financial markets.
Since the trauma, traders have stopped using the LME contract for nickel, which is the global benchmark for producers and sellers to negotiate deals. Thin liquidity has caused a return to volatile swings in prices.
The nickel market mess is far from over – the LME will not find a quick fix to restore faith in the contract and its tarnished reputation. Harry Dempsey
When crypto is cracked
The cryptocurrency industry is suffering its own “Lehman moment” of sliding asset prices and daisy chains failing in overleveraged and often poorly managed market intermediaries. The biggest of all, of course, is the defunct FTX, whose founder Sam Bankman-Fried is now enjoying the full force of a criminal and civil case that could cost him a century in prison. The foundation for this crisis was laid at the beginning of crypto, but the spark for the meltdown came in May.
That’s when the terra crypto token — the brainchild of Terraform Labs’ current founder, Do Kwon — exploded. The so-called “stablecoin” is supposed to have a value of $1 per piece in a scheme powered by algorithms and blind faith. But in May, its value collapsed to zero and pulled a large chunk of the crypto space down, starting with its sister token luna.
A brief history of subsequent events includes the failure of crypto hedge fund Three Arrows Capital, which fell into liquidation in June; Celsius Network (tag line: “debank itself”), which filed for bankruptcy in July; and a host of other intermediaries who, ironically, bailed out at the time by Bankman-Fried. Scott Chipolina
Year of King Dollar
In a bad year for the market, one constant has been the US dollar, which rose to a 20-year high in September against a basket of six other major currencies – up 26 percent since May 2021.
Buck has laid waste to a host of other currencies, including the euro, which sank to parity against the dollar in July, and sterling, which cratered to an all-time low after September disaster “mini” Budget. China’s renminbi also reached its lowest point since 2007, when Japan broke with tradition and intervened heavily to strengthen the yen – which has been trying for years to push it down, not up.
Support for the dollar has come from investors looking for a place to park their cash as inflation rises and Russia’s invasion of Ukraine has roiled global financial markets.
Currently, US inflation appears to be falling and so is the dollar. The slow growth of the US economy and many expectations from the so-called Federal Reserve “pivot” to slow rate increases, or even cut, in 2023 amount to “recipe for the weak dollar”, said Kit Juckes, macro strategist at Société Générale.
Others are not sure. The greenback may have peaked, he argued, but that doesn’t mean it will continue to decline next year.
“Our baseline view is that central banks tightening recession will keep the dollar supported longer than expected,” said Chris Turner, head of global markets at ING. George Steer
How ruble out of trouble
The Russian ruble is the child that cannot return this year. It is stronger against the dollar now than it was before Russia launched its invasion of Ukraine, after rebounding after falling sharply in the first week of March.
The currency initially fell after the war, falling to around 130 against the dollar in the days and weeks after Russia’s central bank more than doubled interest rates to 20 percent in late February to calm the country’s financial markets.
However, the revival does not reflect a wave of investment returning to Russia. However, Putin’s administration of strict capital controls and a block on foreign traders who want to exit the investment helped the ruble recover its losses in April.
Last year brought a new weakness of the ruble, leaving the currency at 72 to the dollar. George Steer