In the first half of the year, the attention of financial operators was catalysed by the high level of inf lation and the consequent new monetary policy paradigm implemented by central banks. In order to contain the price hike that reached 8.6% in the United States and 8.5% in the Eurozone, central banks started raising interest rates.
The macroeconomic scenario was significantly impacted by the armed conflict between Russia and Ukraine which, in addition to causing inevitable geopolitical tensions, impacted the continent’s economic and commercial dynamics, causing a sudden rise in commodity prices and the emergence of supply chain bottlenecks. In this context of high uncertainty and volatility, the main global stock markets recorded a yield decline of between fifteen and twenty percentage points in euros, depending on the region.
In the face of inflation levels that have not been reached globally since the eighties, the ECB’s Governing Council announced the end of the Asset Purchase Programme (APP) and approved a first 50 bps rate hike from the end of July. On the US front, the Fed raised interest rates by 150 bps over the period.
Following the interventions of the central banks, the ten-year US Treasury yield over the period reached about 3.5%, and then closed the period at approximately 3%, while the German ten-year yield reached 1.75% closing the six-month period at 1.37%. Yields on the short-term part of the main bond curves were also significantly impacted by the rate hike. The yield on two-year government bonds in the US and in Germany rose by around 220 bps and 126 bps, respectively.
The risk aversion observed in financial markets and the fear of a possible slowdown of growth from next year led to a widening of credit spreads. In particular, the spread on high-yield issues and euro area financial issues widened by 330 bps and 300 bps to reach 647 bps and 671 bps, respectively. The BTP-Bund spread reached a high at 240 bps and then closed the period at around 118 bps.
In this scenario, the Eurostoxx50 index fell about 20%, while the S&P500 declined by about 14% in euros. The scenario on the Asian front differed compared to the West. In particular, the Chinese government took action to promote expansionary economic policies, also supported by its central bank and, despite the strict closures put in place to counter the spread of Covid, the stock market closed the period recording about -4.70% in euros, outperforming the developed countries.
Since the start of the year, high inflation and rising interest rates impacted equity markets. In particular, some investors moved from the “growth” sector to the “value” sector, as “Growth” companies tend to be more penalised by the greater sensitivity of earnings growth to rising interest rates.
The energy and utilities sector performed well over the period globally, while the technology and consumer discretionary sectors underperformed. With regard to currency markets, the dollar appreciated by approximately 8% against the euro. In the reporting period, the euro/dollar exchange rate declined from 1.13 to 1.04. The euro depreciated mainly due to the increase in the cost of commodities denominated in dollars due to the energy crisis in Europe and the restrictive monetary policy already started by the Federal Reserve compared to the ECB’s scheduled start in July.
In the first half of the year, the general commodity index (BCOMTR Index) rose sharply, albeit offset by the reductions in June. The driving force behind the rise was the outbreak of the geopolitical crisis in Ukraine, which led to widespread fears about the availability of supply in important sectors of the commodity complex, such as energy, industrial metals and agriculture. In June, the fears of recession caused by the changed attitude of the central banks began to be felt, which caused a retracement of the energy sector of about 20% in respect of its highs. The energy sector, where Russia plays a leading role in the world in both oil and natural gas supply, was particularly positive.
The trends in industrial metals and precious metals were instead negative, as, after the increases in the first quarter, they were severely affected in the first case by the fears of recession, and in the second by the strong increases in US and European real rates; there was a moderate rise in agricultural raw materials, which, after the surge at the beginning of the year, also suffered a significant reversal of trends.