Monthly Commentary | December 22

Investors enjoyed another month of strong investment performance across different asset sectors during November.  In Europe, a milder Autumn and the ability to access gas from the US (via hastily arranged tankers) has resulted in gas storage well above what was expected and indeed average storage for this time of year.  Accordingly, some of the worries around energy security have receded (albeit far from being vanquished – and much could yet happen to change this).  Combined with some other inflationary factors starting to show signs of peaking, or being close to peaking, we observed that markets may be starting to sense the end of the interest hiking cycle. 

The impact of this was perhaps best summed up when the US published its CPI update in November and surprised analysts with a figure of 7.7%, being lower than the 7.9% expected – markets were so much expecting to be disappointed with a number higher than forecasts that based on this small reduction there was a significant rally in both the bond and equity markets. 

We shouldn’t read too much into any single figure, but what it does highlight is that markets are seeking reasons to rally.  There will be plenty of negative data points in the coming months, and we can expect markets to give back some of these gains on those days, and therefore volatility will remain elevated, but maybe we’ve seen the worst of plunging bond and equity markets? 

The other significant feature in November was the surprising sell-off of the USD which saw the NZ dollar recover a significant portion of recent losses, and hence hedged funds have been protected from losses in US dollar exposures in particular.