Our latest monthly investment update for December 2022 looks at how the global investment markets, economy, and commodities perform.
The FTSE 100 index of leading UK company shares closed at the end of November at 7,588.25 points, up 481.53 points or 6.78% during the month.
Russian oil cap
European markets started December in muted territory following the introduction of a G7 and European Union (EU) price cap on Russian seabourne oil.
The price cap, set at $60 a barrel, is designed to reduce Moscow’s ability to finance its invasion of Ukraine and to preserve stability in the global oil market. The price cap level will be reviewed every two months to keep it at least 5% below the average price for Russian crude oil.
Currency strength
Pound Sterling reached its highest level against the US Dollar since June, with the Dollar weakening due to expectations of an interest rate hike slowdown.
Such a move should ease the UK’s cost of living crisis, making it slightly cheaper to import goods.
International investors are taking a more positive view of the UK economy since the turmoil caused in September by former Prime Minister Liz Truss and her equally short-lived Chancellor Kwasi Kwarteng.
Stagflation warning
The Confederation of British Industry (CBI) is warning of stagflation in the UK, a combination of low economic growth and weak business investment. As a result, it thinks the UK could fall into an economic recession for a year.
The CBI forecasts a recession next year and a growth of 1.6% in 2024. They also noted that business investment levels will remain 9% below their pre-pandemic levels two years from now.
Tony Danker, CBI director general, believes the UK must “start taking action” on business investment to avoid a “longer and deeper” recession than necessary. He said:
If we’re going to avoid this recession being longer and deeper than it needs to be, then we need to start taking action the prime minister himself recommended earlier in the year. We have to start to take these seriously… or we’re not going to change that pattern of low business investment.
US jobs data
The latest US data shows 263,000 new jobs added to the economy in November, with the unemployment rate remaining close to a 50-year low of 3.7%.
November’s figures follow two solid months for new jobs, with resilient hiring practices despite rising interest rates and more challenging times in the technology and real estate sectors.
Another report from payroll provider ADP shows fewer new private sector jobs than expected, suggesting the interest rate rises are filtering through to hiring decisions. Nela Richardson, chief economist at ADP, said:
Turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains.
In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing.
UK house prices
House prices in the UK fell last month at their fastest rate in two and a half years. The fall in house prices is thought to be the result of the disastrous mini-Budget in September, with lender Nationwide saying the impact on mortgage rates put off buyers and could weigh on market sentiment for months to come.
Average house prices fell 1.4% in November to £263,788, following a fall of 0.9% in October. On an annual basis, price growth slowed from 7.2% in October to 4.4% in November.
Robert Gardner, chief economist at Nationwide, said:
While financial market conditions have stabilised, interest rates for new mortgages remain elevated, and the market has lost a significant degree of momentum. Housing affordability for potential buyers and home movers has become much more stretched at a time when household finances are already under pressure from high inflation.
Price inflation
As measured by the Consumer Prices Index (CPI), price inflation in the UK reached 11.1% in the twelve months to October, its highest rate in 41 years.
The annual inflation rate rose by one percentage point in a month, despite government financial support for energy bills. More expensive food prices contributed to the rise, up 2% in a month. Milk, cheese and egg prices rose 27% compared to a year earlier.
The Bank of England is scheduled to make its next interest rate decision on 15th December, aiming to get CPI inflation back to its target of 2%.
The Bank Rate now stands at 3%, up from 0.1% in December 2021. Financial markets expect interest rates to rise to 4% in early 2023 and peak at 4.8% in July next year.
Car registrations
Despite rising interest rates and a slowing economy, registrations of new cars in the UK rose strongly in November, rising by 23.5% year-on-year to 142,889 units. The Society of Motor Manufacturers and Traders reported its highest November sales in 2019, with sales performing strongly despite continuing global supply issues.
Plug-in electric vehicles made up 27.7% of new registrations, with battery electric vehicles claiming the largest monthly share of the new car market in 2022. The SMMT wants the UK government to invest further in the electric car charging infrastructure.
Mike Hawes, SMMT chief executive, said:
Recovery for Britain’s new car market is back within our grasp, energised by electrified vehicles and the sector’s resilience in the face of supply and economic challenges.
As the sector looks to ensure that growth is sustainable for the long term, urgent measures are required – not least a fair approach to driving EV adoption that recognises these vehicles remain more expensive, and measures to compel investment in a charging network that is built ahead of need. By doing so we can encourage consumer appetite across the country and accelerate the UK’s journey to net zero.
Sales of petrol cars rose 15% year-on-year, with diesel car sales down 5%.
Market data
On 5th December, £1 buys $1.2246 or €1.1625. Gold is $1,794.35 an ounce, and UK natural gas futures are 341.97p/therm, up from 312.00p/therm at the start of November. The UK 10-year gilt yield was 3.096%.
