With inflation softening and the threat of more aggressive rate rises diminishing, equity markets had a strong month. In this environment, the VIX was not far off its average (17), closing the month at 20.7.
Yet November was anything but quiet, particularly if you are in the world of crypto. There was also Russia's pullback from Kherson, mixed messages from China, oil at a two-year low and the weakening USD, Republican midterm disappointment, and Donald Trump announcing his 2024 run for president.
The US economy showed itself to be in better shape than expected. The CPI reading on 10 November came in below expectations, leading to US stocks having their best day in two years. With this, the Fed started to make increasingly dovish noises, backing slower rate rises, supported by a "substantial majority" of officials, and the markets lapped it up. In the midterm elections, Republicans may have been the winner, although expectations of a whitewash were far from the case, to the extent that Trump's presidential bid may be shortlived.
Now that Xi has positioned himself as the absolute leader, we thought we might start to see more stimulus and increased opening-up. Instead, we have seen confusion, with new quarantines and traditional authoritarian behaviour stamping down on dissent. The economy does appear to be more of a priority, but we need further clarity before the world returns to risk-on China.
The UK continues to flounder. There are no two ways about it, we are still struggling to recover from the Truss/ Kwarteng hangover. The problems, however, run deeper, with the economy shrinking by 0.2% in the quarter to the end of September. This figure was better than the expected 0.5% but is still on a downward trajectory as it approaches recession. UK inflation currently sits at 11.1%, which is a 41-year high. The OECD opines that the UK economy is the worst performing country in the G20, bar Russia, adding that fighting inflation must be the top priority.
While we invariably focus on the UK, the EU is also a disaster. It has slashed growth forecasts for 2023, and continued contraction looks set for the first quarter, led by Germany. Against expectation, eurozone inflation did, however, fall to 10%, the first drop in 17 months, helped by lower energy and services costs.
In terms of interest rate rises, November saw the Fed and Bank of England hit their stride. Both came out with 0.75% increases, followed by increasingly dovish noises and comments that we are close to the peak. Fed chair Jay Powell backed this up at the end of the month, saying he will be "moderating the pace of rate increases," although the central bank will not "prematurely loosen" monetary policy.
Equity markets lapped all of this up and most indices closed the month in comfortable, positive territory. The S&P 500 and Nasdaq were up 5.4% and 4.4%, and marked the first back-to-back monthly gain since 2021. The FTSE 100 and Dax were up 6.8% and 8.6%, while the Nikkei rose 1.4%.
Oil markets continued to fall through much of the month as recessionary fears and reduced demand weighed on markets, then rallied into month end as market sentiment became more positive. WTI was at one point back at two-year lows but ultimately fell around 6% for the month, while Brent fell by 9.8%. We still have a Russian crude ban set for December, which will impact the supply side. In metals, copper was up 11% and iron ore 25%. In precious metals, gold rose by 8% and silver by 17%.
The USD has been falling fast during the month as risk appetite improved, although it will not take much to strengthen. GBP is again back to 1.20 and the EUR 1.04, having not so long ago been below parity.
After a relatively calm October, November was a month to forget for crypto. There have been a few bad months this year, but November was truly painful, and 2022 is turning out to be the sector's annus horribilis - bitcoin was back to flirting with $15,000 (closed the month at around $17,000) for the first time since November 2020.
Behind this was the bankruptcy of crypto broker FTX that not so long ago was held aloft by crypto bros, regulators and the world's most prominent tech investors as the shining beacon in the space. Yet this has now unravelled, showing a business that lacked governance, was a poorly structured and insolvent basketcase, or Ponzi backed by tokens it had issued. This has raised questions over the legitimacy of the whole sector and has started to see the contagion fallout. Various firms have since filed for bankruptcy and many investors now holding worthless FTX tokens - 80,000 in the UK alone. At the same time, big institutional investors such as SoftBank and Tiger Global have written off sizeable investments.
Crypto does have a future, but as much as it will stick in the throats of crypto libertarians, there is a desperate need for regulators (and rules) in the space to legitimise it and provide lines in the sand. Confidence is lacking in crypto, and even the speculators are sitting on the sidelines. Every time they see a floor in the price, further questions are raised. Even Changpeng Zhao, founder and CEO of Binance, is calling for regulation. This space cannot go unchecked any longer.