Week ending 2nd December 2022.

The prospect of an easing of Chinese Zero-Covid restrictions coupled with a potential slowdown in central bank monetary tightening helped global equity market sentiment this week.

Although the Fed Chair, Jay Powell on Wednesday (30 November 2022) indicated that interest rates would continue to rise and would remain high in order to bring US inflation down, he signalled that policymakers at the US central bank were likely to slow the pace of interest rate increases when they next meet on 14 December 2022.

Also helping the cause for a slower pace in monetary tightening was this week’s Eurozone inflation reading which fell to 10.0% thanks to a decline in energy costs. This provided us with more evidence that global inflation has peaked, as November’s headline reading not only came in well below October’s reading of 10.6%, but also economist expectations of 10.4%.

The only dampener this week was the US employment report: the Fed currently believes it needs to see a sustained weakness in the employment market to see inflation come down – and today’s (Friday 2 December 2022) US employment data came in much stronger that economists expected with payrolls increasing by 263,000 versus expectations of just 200,000.

However, while employment has historically fallen during an economic slowdown, it might not necessarily be repeated this time. With coronavirus supply-chain shortages fresh in their minds, companies currently appear to reluctant to lay-off staff in order to protect themselves against future resignations and to ensure they have enough staff with the right skills when the economy does starts to recover (thus avoiding the time and expense of hiring and training new people).

Looking ahead to this coming week, we have an OPEC+ meeting; US factory orders; US mortgage applications; Chinese CPI inflation; US & Chinese PPI inflation; Eurozone retail sales; Chinese PMI; Chinese trade balance; and the University of Michigan Consumer Sentiment Index.

Investment Management Team