December Market Commentary

Commentary by Luna Investment Management – A Thornbridge Appointed Representative

December was a slightly weaker month for most asset classes with both bond and equity markets coming under pressure. The key development during the month remained the theme we have seen all year and the moves by central banks to further increase interest rates. The Bank of England has now increased interest rates to 3.5%, a significant distance from the 0.25% level at the beginning of 2022. The key reason for interest rates moving higher was inflation. Whilst this remains elevated it has started to moderate and even fall in some regions. The UK Consumer Price Index (CPI) fell to 10.7% in December from 11.1% in the previous month. The United States is seeing bigger falls in inflation with data released confirming that CPI has fallen to 7.1% from 7.7% in the previous month.

The UK ten-year government bond yield ticked up from 3.05% to 3.58% in the month, which meant that bond prices fell in value due to the inverse relationship between yields and price. Most major equity markets fell modestly during the month, however, the Hang Seng (Hong Kong stock market) bucked the trend and delivered a positive return. Chinese equities continue to bounce from depressed levels and the government reversal of their Covid strategy, despite the high number of cases being reported, is being welcomed by investors.

In summary, inflation and the cost of living continues to impact on us and markets in the short term.

Author: Alex Hackett

Alex is a member of the investment funds team. She is involved in the portfolio construction process and assists with regulatory reporting, trade surveillance and monitoring.