Weekly review 12 December 2022: A weaker week on the markets for a change


Given the recent context, the past week on the markets has turned out to be relatively weak for investors, with stock prices sliding in both Europe and the USA. The current week will set the tone for the remainder of 2022 and determine the starting points for the new year from an investor’s perspective.

Last week ended on a downward note, with stock prices plunging on both sides of the Atlantic. The S&P 500 index fell by close to one per cent during the last hour of trading on Friday. At the same time, credit spreads widened and interest rates rose towards the end of the week. The exchange rate of the euro against the dollar remained flattish, at around 1.05.

Last week did not offer much in the way of economic data. Both producer price data and the Michigan University’s consumer confidence figures were published in the USA on Friday. Producer prices were higher than expected, but consumer confidence was at a better level than expected.

The Chinese government’s measures to lift Covid restrictions continued last week. The possibilities for those who have fallen ill to be quarantined at home were expanded, whereas earlier they were locked up in quarantine camps. Despite the slow progress in lifting restrictions due to, among other reasons, low vaccine coverage, the news has been welcomed with open arms in the markets and has sent the Chinese equity markets to a clearly faster rise than the rest of the world.

Market focus shifting from inflation to economic growth

As 2022 comes to a close, it seems that uncertainty related to economic growth is on the verge of replacing inflation and key interest rates as the main theme on the markets. With their communications, central banks have reduced the uncertainty as to when key interest rates will peak, and the markets are now pricing in a downward turn in interest rates in the USA during next year. The European Central Bank, in turn, is expected to keep its key interest rate at around 3 per cent at least for the next year.

The markets are now pricing in a recession, which would take place in the spring of next year. However, the pricing is based on the assumption that the slow-down in economic growth will not be exceptionally dramatic.

From a historical perspective, market performance after a high inflation peak depends on whether the inflation is followed by a recession or not. In the past, the S&P 500 index has, almost without exception, begun to rise after strong inflation. The steepness of the rise has depended on the depth of the recession that has followed the inflation. If it turns out that there is no recession next year, not only stabilised monetary policy but also a better than expected economic situation will be positive drivers for the markets.

Will volatility change playing fields in 2023?

Since spring 2021, volatility has been higher in the fixed income markets than in the equity markets. The difference grew further last February, and the prices in the fixed income markets have been very unstable ever since. In the equity markets, volatility has remained moderate.

With the central banks’ interest rate policies becoming more predictable and higher interest rates being priced in by the markets, volatility in the fixed income markets can be expected to stabilise over the course of next year. The equity markets, in contrast, may face slowing economic growth and a potential recession, which would increase volatility in stock prices. It is thus possible that the roles of the equity and fixed income markets will be reversed.

High volatility makes predicting the markets more difficult while at the same time providing investors with opportunities.

A superweek of macroeconomic data

The current week will set the stage for both the remainder of the year and early 2023. The US inflation figures for November, published on Tuesday, serve as guidance for the Fed which, in its interest rate meeting on Wednesday, is expected to announce an interest hike of 50 basis points. Thereafter, the Fed is expected to raise its key interest rate further by a total of 50 basis points in its next two meetings, after which, according to market pricing, the interest rate hike cycle will come to an end.

Wednesday will also see the publication of industrial production figures for Europe, followed by the figures for the USA on Thursday.

The European and British central banks will hold their interest rate meetings on Thursday. The ECB is also expected to raise its key interest rate by 50 basis points. The markets are pricing in a 1 per cent interest rate hike by the ECB before summer 2023, in addition to the currently expected 0.5 per cent, which would bring the deposit rate to around 3 per cent.

The superweek will culminate on Friday with the publication of the aggregate PMIs for Germany, the eurozone and the USA. These indices, consisting of the results of surveys conducted among companies’ purchasing managers, describe companies’ production, order intake, employment level and other key indicators. The indices provide a good picture of economic and inflationary development, as companies pass the prices they pay for orders onto their own prices, and therefore either raise or lower inflation. If a company has made a lot of new orders, it can indicate a recovery in economic growth.


Nothing presented here is or should be taken as an investment recommendation or solicitation to subscribe for, buy or sell securities. When making investment decisions, the investor must carefully familiarise themselves with the information given on the financial instruments and understand the related risks. The investor must base their decision on their own assessment, goals and financial situation. Risk is always inherent in investment activities. The value of the investment instruments may increase or decrease. The past performance of investment instruments is no guarantee of future performance.

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