Week ending 6th January 2023.

As you can see from the accompanying table, global equity markets enjoyed a solid start to start 2023.

The release of the minutes from the last Fed monetary policy meeting, which was held on 14 December 2022, had a hawkish tone, as policymakers appear to be pushing back against our view that US interest rates should be cut later this year due to slowing economic growth.  However, it should be noted that, as with most things in life, it will be easier for Fed policymakers to talk tough now about the need for higher interest rates, than it will be to maintain that determination once US economic activity starts to contract.

Although this afternoon’s (Friday 6 January 2023) US non-farm payroll data suggests the US employment market remains robust, with payroll growth coming in slightly higher than expectations at 223,000, November’s payroll growth was revised down slightly.

Furthermore, wage growth came in lower than expected at 4.6%, down from 5.1%, while the previous month’s growth figure was revised down – a clear sign the pressure in the employment market is actually starting to ease.

Additionally, US factory orders fell 1.8% during December and the ISM reading came in at 49.6 (which is well below both November’s reading of 56.5 and economists’ expectations of 55.0 – and as 50 is the line separating expansion and contraction, today’s reading suggests the US economy heading into a recession) – suggesting peak US interest rates may actually be a lot closer than the Fed policymakers are currently thinking.

Elsewhere, the headline Eurozone CPI inflation slowed much more than the market expected, slowing from 10.1% in November to 9.2% in December, driven by the decline in the energy prices.

Looking ahead to this coming week, we have US & Chinese CPI inflation; UK monthly GDP; UK & Eurozone industrial production; Eurozone unemployment; and the University of Michigan consumer sentiment.

Investment Management Team