Stock markets failed to deliver a Christmas rally as they ended December the way they had spent much of the year – mostly down. The MSCI World Net TR index, which tracks global developed equities, was down a further 5% during the month. This brings its total decline for the year to -16%, making 2022 the worst year for global stocks since the financial crisis. One market which managed to buck the trend in December was that of China, which saw its stocks rise 4.7% in one day as the Chinese government relaxed some of its Covid rules.
Inflation showed tentative signs of easing last month, with the Consumer Prices Index in the UK coming down from its 41 year high of 11.1% to 10.7%. Despite this, interest rates continued to rise, with the Bank of England applying its eighth rate hike of the year to end 2022 with a base rate of 3.5%. Gilt prices continued to slump as a result, with long-dated gilts in particular declining more than 8% during the month and ending the year down 40%.
Full round-up of December market performance
In the UK, the FTSE 100 index declined 1.49% while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index respectively, returned -1.60% and +1.26%. In the US, the S&P 500 USD index fell 5.76% while in Europe the Eurostoxx 50 EUR index dropped 4.26%. Japanese stocks measured by the Topix JPY index were down 4.57%.
Emerging markets returns were also mostly negative, with the MSCI Emerging Markets index dropping 1.95% in local currency terms. Indian stocks measured by the Nifty 50 INR index fell 3.48% and Latin American equities, measured by the MSCI Latin America local currency index, conceded 3.84%. However there was a small reversal of fortune for China, with the MSCI China local index gaining 4.79%.
In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, declined 4.09%, with long-dated (over 15 years to maturity) gilts shedding 8.36%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, dropped 1.66%. In the high yield market, the Bank of America Merrill Lynch Sterling High Yield index climbed 0.08%.
There were mixed returns in the commodities market. The S&P GSCI USD index, which consists of a basket of commodities including oil, metals and agricultural items, was down 1.38%. Crude oil futures slipped 0.36% during the month. In the agricultural markets, corn and wheat futures delivered 2.49% and 2.66% in USD respectively. In the precious metals markets, the S&P GSCI Gold and Silver indices surged 4.14% and 10.77% in USD respectively.
In the currency markets, the pound picked up 0.21% versus the US dollar but depreciated 2.52% against the euro and 4.82% versus the yen.