There was no shortage of market events to dwell upon for investors in the third quarter of 2022. Risk assets staged a furious rally through the middle of August only to experience an equally furious drawdown giving back all gains and then some. Economic data was mostly benign, inflation remained stubbornly high, bond yields soared, central banks reaffirmed they are in inflation killing mode, mortgage rates hit 7%, high-yield spreads remained wide, the dollar rocketed, commodities pulled back, the correlation between stocks and bonds pushed deep into positive territory and the war/energy crisis in Europe dragged on. 
There have been growing concerns that years of zero/negative interest rates, and massive liquidity injections by central banks have not only stoked inflation but made the global financial system weaker, not stronger. These concerns received some supporting evidence in the third quarter. The Bank of Japan (BOJ) intervened to buy YEN, the first time since 1998, to defend against a strengthening dollar. The Bank of England (BOE) had to intervene and buy gilts in “whatever scale is necessary” as a pension crisis and pound crisis began to unfold and threaten UK financial stability. In the BOE’s words, they sought to combat “unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy”. Like much of the developed world, both Japan and England are battling rising inflation but slowing economies. These two episodes might be localized in nature, or they may portend similar challenges to come for the global financial community. 

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