Market Update – 21st December 2022.

21st December 2022

The Bank of Japan (BoJ) surprised markets on Tuesday with an unexpected change to its bond yield control. The Yen rallied following the decision, allowing Japan’s 10-year bond yields to rise to around 0.5%, up from the previous limit of 0.25% which will enable long-term interest rates to rise.

The BoJ governor Kuroda said that “the step is aimed at improving market functions, thereby helping enhance the effect of our monetary easing”. Markets widely viewed the decision as Japan taking a step away from their ultra-loose monetary policy and the potential withdrawal of economic stimulus we have seen from policymakers to boost demand. Kuroda made clear that the move was meant to correct market distortions, and that it was “not an interest rate hike”.

The UK has confirmed that households in Northern Ireland will receive a single payment of £600 starting in January to help with energy bills, which should help alleviate inflationary pressures. A £400 payment was initially promised by the UK government for all households however an additional £200 payment was announced in November for households in Northern Ireland due to the proportion of homes that use heating oil.

Eurozone flash consumer confidence came in just under market expectations, indicating that consumers are still feeling the effect of inflationary pressures from the surge of energy costs which are likely to mount through the colder winter months.

As China continues to reopen, the country has naturally seen a rise in Covid cases and deaths. Whilst this could be seen as unnerving, for most, Covid now seems to be a thing of the past with many countries now learning to live with the virus. There is a sense that policymakers in China have become more accepting in the fact that there are going to be “exit wave” cases. This week we saw local news outlets reporting that “Virus experts expect normalcy by spring”. Hong Kong television networks have also reported that Chinese authorities will look at scrapping quarantine measures for inbound travellers next month, “which means China will fully open up in 2023”.

This week, Australia’s foreign minister will meet with her Chinese counterpart with the view of strengthening ties; it will be the first visit to China by an Australian minister since 2019. Political ties between Australia and its main trading partner, China, worsened in recent years after Canberra called for an international inquiry into the origins of the pandemic, which led to Beijing imposing sanctions on Australian exports. As China starts to break onto the world stage, the country has been keen to improve their geopolitical relations with other world powers like the US and Saudi Arabia, which is positive for global markets.

As the year draws to a close, economic data and news tends to quieten. Consequently, our next scheduled update will be Tuesday 3 January 2023, although we will still be working and managing your investments over the Christmas period and of course will provide a market update should any major market moving events occur. Finally, we would like to wish you and your family a very Merry Christmas and a Happy New Year.

Kate Mimnagh, Portfolio Economist