There’s an old adage that states that ‘bad news sells'. Behavioural science shows us that we are more interested in shocking stories that evoke certain emotions within us. Think about some of the headlines that you have consumed over the last few days – whether via television, print or radio. Invariably it will be negative in nature. Understanding this fact within investment markets can be a powerful tool to keep us all on track.
The collapse of Crypto exchange FTX has dominated financial news flows in recent weeks. As we have stated before, it is interesting (no doubt several books and a movie are in the works) but not of huge concern to investors outside of the Crypto world. Putting this debacle to one side big investment news stories has been somewhat thin on the ground in the last quarter of 2022. Economic data and central bank rhetoric has been broadly constructive and there hasn’t been a huge amount (relatively speaking) to talk about.
So, if we take the converse of the opening statement what should we expect? If bad news sells, good news doesn’t; and therefore, if news flow has been subdued markets must be quietly going about their business. Indeed, equities are up over 7% and bonds over 3% since the end of September, which means multi-asset fund investors are (whisper it quietly) in better shape than they were two months ago.
As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.
Weekly Investment News
Equity movements were somewhat muted last week, as US markets were interrupted by the Thanksgiving Holiday on Thursday and barring World Cup matches, the week observed no major upsets. US equities, however, did rise slightly on the back of minutes released from the Federal Reserve’s most recent policy meeting which suggested an easing in rate hikes. Investors who have worried of the crippling effects of tight financial conditions on the US economy were buoyed by this sentiment, with many viewings it as a headwind for inflation coming under control. US equities closed the market up 0.3%, in Euro terms. In US bond markets the benchmark 10 Year Treasury Yield finished the week 12 bps lower at 3.68%, on the back of lower inflation expectations.
Although gains in the US were incremental this week, some analysts have used this as evidence of an inflection point in the prevailing bear market, the soft increases bode well for the long term as opposed to the steep rallies we observed in recent weeks.
Within Europe, equities ended the week up 1.8%. This came on the back of the more dovish Central Bank news from the US, as well as some positive economic data for European economies. In Germany the report on German Business Confidence suggested expectations of a milder recession. Whilst last Wednesday saw the release of November’s flash PMI survey for the Eurozone, which showed that although the Bloc remains in a contractionary period, supply chain and cost pressures have eased somewhat suggesting a more upbeat sentiment.
Lastly, Asian equities continue to suffer while Chinese growth prospects remain uncertain under China’s Zero Covid Policy. With cases on the rise in China and reaching a new record high on Friday, worries about lockdown conditions becoming prolonged have hurt equities in Hong Kong, finishing the week down -2.0%, in euro terms.
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