# It’s not all gloom and doom at the moment Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-12-14 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: Global Markets Analysis: Pre-Xmas Gloom to Turn to Cheer Meta Description: Join Chief Economist Rupert Thompson for insights on market trends post-weekend football disappointment and travel chaos. Expect a bumpy road ahead, but signs URL: https://financedigest.com/its-not-all-gloom-and-doom-at-the-momenthtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/istock-1222743196-1736814722439-compressed.jpg) _![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/696-1736814722455-compressed.jpg)_ _By **Rupert Thompson,** Chief Economist at Kingswood_ After a weekend of football disappointment and travel chaos, and with a strike calendar looking rather more useful than an advent calendar, this week’s commentary is an unashamed attempt to lift the pre-Xmas gloom and restore a bit of seasonal cheer. Global equities were down 2-3% last week and have also opened a bit lower this morning. However, this decline was hardly a surprise as it followed a rebound of as much as 12% from the October lows. While [markets are likely to have a few more testing and volatile months ahead](https://www.financedigest.com/dollar-soars-to-two-decade-high-as-putin-shakes-fx-market-ahead-of-fed.html "Dollar soars to two-decade high as Putin shakes FX market ahead of Fed"), we believe they should be in a position to start recovering next spring. The UK will very likely still be in recession, as may well the US and the Eurozone, but [markets typically bottom a good few months before any upturn in economic](https://www.financedigest.com/wall-street-bounces-oil-slides-as-markets-mull-murky-economic-picture.html "Wall Street bounces, oil slides as markets mull murky economic picture") activity. These [recessions also look set to be quite mild](https://www.financedigest.com/german-businesses-expect-only-mild-recession-as-disruptions-ease.html "German businesses expect only mild recession as disruptions ease"), as there are few of the structural imbalances which led to the downturn in the global financial crisis being as severe as it was. China should also be a support for the [global economy](https://www.financedigest.com/september-tropical-cyclones-cost-global-economy-more-than-4bn-according-to-aon-catastrophe-report.html "September tropical cyclones cost global economy more than bn, according to Aon catastrophe report") next year. The authorities are stepping [back from their zero covid policy faster](https://www.financedigest.com/how-to-bring-immediacy-back-to-the-supply-chain-with-faster-payments.html "How to Bring Immediacy Back to the Supply Chain With Faster Payments") than expected, which should ensure that economy is picking up just as the West is turning down. [Markets are certainly excited by this policy shift](https://www.financedigest.com/demand-for-automotive-gas-charged-shock-absorbers-market-to-be-fuelled-by-rapid-shift-in-consumer-perception-and-increasing-awareness.html "Demand for Automotive Gas Charged Shock Absorbers Market to be Fuelled by Rapid Shift in Consumer Perception and Increasing Awareness"), with Chinese equities rebounding more than 20% over the last month. There has also been good news on [energy prices](https://www.financedigest.com/ecb-survey-shows-rising-inflation-expectations-despite-energy-price-falls.html "ECB survey shows rising inflation expectations despite energy price falls"). Their [surge earlier in the year is a major factor behind the jump in inflation](https://www.financedigest.com/boes-bailey-speaks-about-surging-inflation-and-rate-hikes.html "BoE’s Bailey speaks about surging inflation and rate hikes") and the coming slide into recession. However, the Brent [oil price](https://www.financedigest.com/oil-prices-steady-after-u-s-stockpile-swell.html "Oil prices steady after U.S. stockpile swell") fell 10% last week to $76/bbl and is down from a high of $120 and at its lowest level all year. As for gas prices, the [cold snap](https://www.financedigest.com/france-strains-to-avert-power-cuts-as-cold-snap-tests-europes-energy-resolve.html "France strains to avert power cuts as cold snap tests Europe’s energy resolve") has led to them rising again just recently. But in Europe, they are still down over 50% from their highs, even if they remain way higher than a couple of years ago. This fall in oil [prices is now helping drive inflation](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc-2.html "UK shop price inflation hits record 8% in January: BRC") lower in the US. Unlike in the UK and Eurozone, where it is still running at around 11%, US [inflation has already dropped back](https://www.financedigest.com/love-in-a-time-of-inflation-how-much-will-valentines-day-set-you-back.html "Love in a time of inflation: how much will Valentine’s Day set you back?") from 9% to 7.7% and this week’s numbers should show a further decline. [Worries over the sharp rise in interest rates](https://www.financedigest.com/uk-stocks-slip-as-rate-hike-worries-grip-investors.html "UK stocks slip as rate hike worries grip investors") have been a major factor behind this year’s decline in markets and will remain a crucial driver going forward. Along with the US and UK inflation numbers, the focus this coming week will be very much on the central bank fest, with the Fed meeting on Wednesday and the [ECB and BOE](https://www.financedigest.com/sterling-steadies-vs-dollar-ahead-of-boe-ecb-meetings.html "Sterling steadies vs dollar ahead of BoE, ECB meetings") both meeting on Thursday. While further [rate hikes](https://www.financedigest.com/bank-of-england-set-to-hike-to-4-as-rate-peak-looms.html "Bank of England set to hike to 4% as rate peak looms") will undoubtedly be announced, the good news is that the Fed, and probably also the ECB and BOE, should only raise rates by 0.5, rather than by 0.75% like last time. While this is very unlikely to be the last hike, we should now be getting quite close to the top. In the US, [rates should peak](https://www.financedigest.com/ecbs-centeno-says-interest-rate-close-to-peaking-if-no-new-shocks.html "ECB’s Centeno says interest rate close to peaking if no new shocks") at around 5% versus their current 3.75-4%. In the UK, rates look [set to rise](https://www.financedigest.com/factbox-how-far-are-uk-energy-bills-set-to-rise-and-what-help-are-consumers-getting.html "Factbox-How far are UK energy bills set to rise and what help are consumers getting?") from 3% now to a high of 4-4.5%, but this is well below the 6% feared by the markets at the height of the mini-budget fiasco. The UK does look set to [see a lengthier recession than elsewhere with a major squeeze](https://www.financedigest.com/european-airlines-see-travel-withstanding-consumer-squeeze-for-now.html "European airlines see travel withstanding consumer squeeze for now") on living standards. But it [shouldn’t be forgotten that unemployment should remain much lower than in the past](https://www.financedigest.com/why-co-op-bank-shouldnt-rely-on-its-past-to-get-it-to-its-future.html "Why Co-op Bank shouldn’t rely on its past to get it to its future"). The [pain will just be spread around](https://www.financedigest.com/pain-of-breaking-inflation-will-reverberate-around-the-globe.html "Pain of breaking inflation will reverberate around the globe") much more this time, rather than concentrated amongst the unemployed. While the UK appears to be already in recession, today’s [numbers did show GDP holding](https://www.financedigest.com/tennis-williams-retirement-on-hold-after-win-over-world-number-two.html "Tennis-Williams retirement on hold after win over world number two") up a bit better than expected in the three months to October. For the stock market at least, the relatively poor prospects for the economy are anyway not such a [big deal](https://www.financedigest.com/big-pharma-may-have-to-reveal-government-deals-in-whos-draft-pandemic-rules.html "Big Pharma may have to reveal government deals in WHO’s draft pandemic rules"), with around 75% of sales coming from overseas for large-cap stocks and 45% for small/mid-cap stocks. Moreover, the bad news is more than priced in, with UK equities looking very cheap. They currently trade on a 12-month forward price-earnings ratio of 10.0x, 25% below their 10-year average and some 35% below the 15.3x for [global equities](https://www.financedigest.com/rate-rise-fears-prompt-third-week-of-global-equity-funds-outflows.html "Rate rise fears prompt third week of global equity funds outflows"). Despite all the gloom and doom at the moment, the fact remains that UK equities are the best performing major market this [year and have returned](https://www.financedigest.com/heathrow-airport-says-return-to-pre-pandemic-demand-years-away.html "Heathrow Airport says return to pre-pandemic demand years away") +1.8% versus a loss of 5.2% in overseas markets. We believe their cheapness should continue to stand them in relatively good stead going forward, despite no doubt a continuation of the unremittingly depressing headlines in the press. That said, the English cricket have just won the test series in Pakistan for the first [time in 22 years](https://www.financedigest.com/30-years-of-excel-lence-time-to-move-on.html "30 YEARS OF EXCEL-LENCE: TIME TO MOVE ON?")! --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---