A stock trader looks at his monitors at the stock exchange in Frankfurt, Germany.
Kai Pfaffenbach | Reuters
LONDON — European markets are on course for their worst year since 2018 as Russia’s war in Ukraine, high inflation and tightening monetary policy hammered risk assets around the world.
The pan-European Stoxx 600 index started the last trading day of 2022 down more than 12% since the turn of the year, its worst performance since a 13.24% annual decline in 2018. The European blue chip index enjoyed a bumper 2021, jumping 22.25% on the year.
Morning trade on Friday saw the U.K.’s FTSE 100 slide 0.3%, the CAC 40 down 0.6% and the German DAX lower by 0.5%. The Stoxx 600 was down 0.4%.
Economies around the world began the year still trying to emerge from the Covid-19 pandemic, with persistent lockdowns in China and other lingering supply bottlenecks forming what was now infamously mischaracterized by the U.S. Federal Reserve in 2021 as “transitory” inflationary pressure.
Russia’s unprovoked invasion of Ukraine in February, and subsequent weaponization of its food and energy exports in the face of sweeping sanctions by Western powers, sent food and energy prices skyrocketing and compounded this pressure, helping to send inflation to multi-decade highs across many major economies.
The cost-of-living crisis arising from soaring energy bills for businesses and consumers eventually began to weigh on activity, while the Fed and other major central banks were forced to tighten monetary policy with aggressive hikes to interest rates in order to rein in inflation.
However, these efforts to suppress demand weighed heavily on already faltering economies. The U.K. is projected to already be in what will be its longest recession on record, while a downturn in the euro zone is also seen as highly likely.
With the war in Ukraine showing no sign of abating and China in the process of reopening its economy as it ends three years of stringent Covid measures, investors are looking ahead with some trepidation to 2023.
“What happened this year was driven by the Fed. Quantitative tightening, higher interest rates, they were pushed by inflation, and anything that was liquidity driven sold off — if you were equities and bond investors, came into the year getting less than a percent on a ten-year treasury which makes no sense,” Patrick Armstrong, chief investment officer at Plurimi Wealth LLP, told CNBC’s “Squawk Box Europe” on Friday.
“Next year I think it’s not going to be the Fed determining the market, I think it’s going to be companies, fundamentals, companies that can grow earnings, defend their margins, probably move higher,” he said.
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—CNBC’s Natasha Turak contributed to this article.
