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Economic

How 2022 Shocked, Shook, and Rolled Global Markets By Reuters

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© Reuters. FILE PHOTO: A man appears on a screen showing a stock quote board outside a brokerage firm in Tokyo August 25, 2015. REUTERS/Issa Kato

Written by Mark Jones

LONDON (Reuters) – Trillions of dollars have wiped out global stocks, bond market tantrums, currencies and commodities are rampant, and a few crypto empires have collapsed — 2022 may have been the most turbulent year investors have ever seen, and for good reason.

Calculating final numbers is helpful but doesn’t come close to telling the whole story.

Yes, global equities are down $14 trillion and heading into their second worst year ever, but there have been close to 300 interest rate hikes and a trio of 10% increases in that time which makes the volatility freakish.

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The main drivers were the war in Ukraine, along with rampant inflation as global economies emerged from the pandemic, but China remained constrained.

US Treasury bonds and German bunds, the benchmarks for global borrowing markets and traditional assets in turbulent times, lost 16% and 24%, respectively, in dollar terms.

Jeffrey Gundlach of DoubleLine Capital, dubbed the “Bond King” of the markets, says conditions have gotten so ugly at some points that his team has found it nearly impossible to trade for days at a time.

“There was a buyer’s strike,” he said. “Which is understandable because prices were just going down until recently.”

Graph: Seismic Shifts – https://www.reuters.com/graphics/GLOBAL-MARKETS/egpbyyqjdvq/chart.gif

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The drama began once it became clear that COVID would not shut down the global economy again and the most powerful central bank in the world, the US Federal Reserve, was serious about raising interest rates.

Ten-year Treasury yields jumped to 1.8% from less than 1.5%, down 5% from the MSCI World Equity Index in January alone.

Now that yield is at 3.68%, stocks are down 20% while oil prices rose 80% before giving up entirely. The Fed delivered increases of 400 basis points and the European Central Bank logged 250 basis points, despite saying this time last year it was unlikely to budge.

The dollar is up nearly 9% against the world’s major currencies, and 12.5% ​​against the Japanese yen even after the Bank of Japan’s last-minute surprise this week gave the yen a boost.

In emerging markets, Turkey’s monetary policy and inflation problems cost the lira another 28%, but its stock market is the best-performing in the world.

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A hard-pressed Egypt devalued its currency by more than 36%. The Ghanaian cedi fell 60% after joining Sri Lanka in default. Although down significantly from its June highs, the Russian Ruble remains the second best performing currency in the world supported by Moscow’s capital controls. It was initially broken after the invasion of Ukraine.

Graph: Dollar strength dominates currency markets – https://www.reuters.com/graphics/GLOBAL-MARKETS/zdpxddkarpx/chart.png

Robert Alster, Chief Investment Officer at Close Brothers Asset Management, said Robert Alster, who, like many, noted the hit to sterling and British bond markets lasted in short order. – Government Lease Truss living flirting with unfunded spending.

Ten-year Treasury yields rose by more than 100 basis points and the pound lost 9% in a matter of days – moves of rare size in major markets.

“If you sell it wrong, don’t be surprised if it falls like a cup of cold,” said Michael Hewson, a veteran analyst at CMC Markets.

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technical problems

The price hike also cut $3.6 trillion from the tech giants. Facebook (NASDAQ:) and Tesla (NASDAQ) both bleed more than 60% while Alphabet (NASDAQ:) and Amazon (NASDAQ:) are down 40% and 50%, respectively.

Chinese stocks have seen a late rally on signs that the days of the COVID-19 policy are numbered but still down 25% and emerging market ‘hard currency’ government debt will post its first ever consecutive loss.

Chart: $14 Trillion Wiped Out of Global Equity Value – https://fingfx.thomsonreuters.com/gfx/mkt/znvnbbqdbvl/Pasted%20image%201671611348378.png

Initial public offerings and bond sales fell almost everywhere but the Middle East, while commodities were the best performing asset class for the second year in a row.

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A rally of more than 50% is generally the best in that group, albeit largely due to the war in Ukraine raising prices by 140% at one point.

Growing recession fears combined with the West’s plan to stop buying Russian oil means giving back the full 80% it made in the first quarter, as well as wheat and corn.

Chart: War Prices – https://fingfx.thomsonreuters.com/gfx/mkt/lgvdkkzjmpo/Pasted%20image%201672392863703.png

The cryptocurrency market has been more chaotic. The year 2022 ends with a heist with its combination of cheap money and leveraged bets.

The prominent cryptocurrency has lost 60% of its value, while the broader crypto market has shrunk by $1.4 trillion, following the collapse of Sam Bankman-Fried’s FTX empire, Celsius, and supposed stablecoins, terraUSD and Luna.

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“What has happened in global markets this year has been traumatic,” said Stefan Gerlach, Chief Economist at EFG Bank and Deputy Governor of the Central Bank of Ireland.

“But if central banks had not underestimated the rise in inflation so dramatically and had to raise interest rates, it would not have been disastrous.”

Graphic: An Exciting Year for Global Markets – https://www.reuters.com/graphics/GLOBAL-MARKETS/lgvdkkajzpo/chart.png

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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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Economic

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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