The first six months of 2023 have been eventful for financial markets – from an artificial intelligence-inspired tech stock surge, commodity market capitulations, cryptocurrency comebacks to the worst banking crash since Lehman Brothers.
Linking it all has been the relentless rise in interest rates, which was exactly what battered markets in 2022. But just that this time has been different due to an unshakeable view that the end of the cycle is near.
The result? A 12 per cent, or $6 trillion, rally in the value of world stocks – although it has been ominously top-heavy.
Thanks largely to ChatGPT, the AI boom has resulted in the 'Big Tech' giants enjoying a combined surge of 70 per cent.
Apple, Microsoft, Google parent Alphabet, Amazon and Netflix have made 35 per cent-50 per cent gains.
Meta and Tesla have more than doubled, while AI's demand for semiconductor chips catapulted Nvidia 180 per cent higher, briefly adding it to the elite club of US companies with a $1 trillion market value.
“Basically, things looked so grim at the end of last year that it hasn't taken much to lift the markets,” said Trevor Greetham, head of multi asset, Royal London Asset Management.
But on the tech surge, he said that “it might well be a bubble”, with the firms now effectively needing to bank a 40 per cent jump in earnings to justify their lofty valuations.
Japan's Nikkei share average has been another stellar performer this year, surging 16 per cent in dollar terms, or 26 per cent in yen terms, setting it up for its best year in a decade.
Gold has jumped 5 per cent, benchmark government bonds are up 3 per cent-6 per cent, while the world's most financially damaged countries have done even better.
Bonds in El Salvador, which is now battling out of a default, have returned a whopping 58 per cent. Sri Lankan bonds made a return of 34 per cent, Zambia 24 per cent and war-ravaged Ukraine, Pakistan and serial-defaulter Argentina have all made 19 per cent, each.
“It has been remarkable” said Abrdn emerging market portfolio manager Viktor Szabo. “Roughly half of last year's losses have been made back this year and it has all been in the last couple of months.”
The dollar has been steadier overall although the fact that Japan hasn't raised interest rates yet and China's economy is still spluttering mean the yen and yuan are down 9 per cent and nearly 5 per cent, respectively.
Turkey's efforts to tackle its problems following President Recep Tayyip Erdogan's re-election haven't been made any easier by another 28 per cent dive in the lira.
Egypt has devalued its currency further by nearly 20 per cent, Nigeria has cut naira by 40 per cent, while at the other end of the table Colombian and Mexican pesos and Hungary's forint are up between 10 per cent and 17 per cent.
There have also been about a total of 90 interest rate hikes this year by central banks globally versus just 17 cuts. If last year's rate actions are also added, it comes to just over 470 hikes, compared to 1,202 cuts since the global financial crash in 2008.
The US Federal Reserve has lifted rates by 500 basis points from near zero last year, the European Central Bank has hiked rates by 400 bps and many developing world economies have done far more. Even the Bank of Japan's ultra-loose monetary settings may be approaching a crossroads.
And it has all caused a plenty of churn.
Two-year Treasury yields, which are highly sensitive to the Fed's moves, rose from 4 per cent to 5 per cent in February, only to dive back to 3.5 per cent when Silicon Valley Bank, a midsized US lender few had even heard of, collapsed and consequently led to the 167-year-old Swiss behemoth Credit Suisse requiring an emergency rescue by UBS.
Fast forward and that rate is now at 4.8 per cent. Europe's rates are marching up again and the gap between two and 10-year US Treasury yields – a traditional harbinger of recession – is almost as inverted as it was before the blow-ups.
In the cryptomarkets, bitcoin has bounced back with a bang, soaring more than 80 per cent in typically volatile fashion.
Interest from Wall Street giants including BlackRock are also fuelling gains, although US regulators suing Binance and Coinbase exchanges exposed crypto's vulnerability to regulatory crackdowns.
Commodities, another crucial piece in the macro jigsaw, have been subdued.
A 51 per cent drop in Europe's natural gas prices, oil slipping 13 per cent, and sharp declines in wheat and corn have all fed hopes of lower global inflation.
And while the 'Goldilocks' view of inflation and rates topping out may have won in the first half of 2023, the bears are still swinging.
“Risk premia have to rise,” said Milla Savova, a European equity strategist at BofA, which having been wrong-footed by the rally this year is now predicting a 15 per cent drop in the Stoxx 600 and a recession by the start of 2024.
She warned the sheer aggressiveness of the rate hike cycle was now tipping economies over the edge. “We think that this will be seen as a policy mistake when we look back in the years to come.”