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Global stocks are poised for their worst year since the 2008 financial crisis

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Global stocks on Friday were about to end their worst year since the 2008 financial crisis after central banks’ battle to tame inflation and the war in Ukraine sent powerful waves through asset markets.

The MSCI All-World broad index of developed and emerging market stocks lost nearly a fifth of its value in 2022, with stock exchanges from Wall Street to Shanghai and Frankfurt suffering significant losses.

Bond markets also suffered a sell-off: The yield on 10-year US government bonds, a global benchmark for long-term borrowing costs, rose to 3.8 percent from about 1.5 percent at the end of last year — the largest annual increase in Bloomberg records extending into the 1960s. .

The 9 percent rise in the US dollar against a basket of half a dozen major peers added pressure to many markets. Developing economies have been hit especially hard, because they often borrow in dollars and many key imports, such as crude oil, are priced in the US currency.

It was a dismal year for financial markets as central banks led by the US Federal Reserve increased borrowing costs in an attempt to control the worst inflation in decades. Rapid increases in interest rates globally have dealt a particularly hard blow to many high-growth companies that thrived when central banks and governments delivered a torrent of stimulus measures to support the global economy during the 2020 coronavirus crisis.

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“We’ve been through this situation for years where stocks and bonds were so expensive because they were the same game, driven by low inflation and low interest rates,” said Luca Paolini, chief strategist at Pictet Asset Management. “The lesson of this year is that at some point there is a day of reckoning, and when it comes it is brutal.”

The year-to-date line graph shows a turbulent year for global markets

Tesla, the electric car maker, has shed nearly two-thirds of its value this year, while chip maker Nvidia has fallen 50 percent. US tech giants Apple and Microsoft fell nearly 30 percent, while Google subsidiary Alphabet fell nearly 40 percent and Facebook owner Meta fell 64 percent.

Overall, the leading US S&P 500 is down 19 percent this year, with the technology-focused Nasdaq Composite down 33 percent. The value of the cryptocurrency market has fallen by $1.7 trillion since the start of 2022, according to Financial Times datain a sign of how the speculative fervor that prevailed in 2020 has exploded this year.

China’s sprawling stock markets have also taken a hit as the economy has been crippled by strict coronavirus measures, and the country is now battling a huge wave of infections as it opens up again. The CSI 300 index of stocks in Shanghai and Shenzhen fell 22 percent in local currency terms and 28 percent in dollar terms.

MSCI Europe is down about 16 percent in dollar terms, but down 11 percent in euro terms.

Russia’s all-out invasion of Ukraine in February has further complicated the picture for investors, disrupting supply chains for key raw materials and further fueling what was already a severe bout of inflation. Commodities have been among the rare gainers in global markets this year: the S&P GSCI broad measure rose 7 percent, with energy and agricultural prices posting strong gains.

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The FTSE 100 in London, which focuses heavily on energy, mining and pharmaceutical companies, which have done better in the market turnaround this year, is up slightly from the year so far.

Column chart of annual change in the 10-year US Treasury yield (percentage points) showing US bond yields at a historic high

The intensity of market volatility this year highlights the scale of systemic change facing global investors, who have grown accustomed to low interest rates since central banks took extraordinary measures to prop up the global economy during the 2008 financial crisis and the pandemic that followed 12 years ago. Later.

Higher interest rates have affected the attractiveness of owning assets such as stocks and riskier debt because investors are able to earn better returns with cash or ultra-safe assets such as US, German or Japanese government bonds. Because higher rates make borrowing more expensive, they also tend to put pressure on the broader economy by tightening financial conditions for businesses and corporations.


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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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