Please see below article received from Brooks Macdonald earlier this afternoon, which provides a global market update following positive economic developments in the US and Europe.
What has happened
Equity markets ended the day slightly lower as economic growth concerns continued. Bond yields fell as this weaker demand narrative was priced in, with the US 10-year yield now down to 3.42%, maintaining the significant inversion of the yield curve.
Economic growth
Nearer term strong economic momentum in the US, such as the upward revision to Q3 productivity, is doing little to shake the market’s malaise over the state of the global economy. Europe also saw some more constructive data with Euro Area growth revised up by 0.1%. Despite this, yesterday saw further falls in the US and international oil benchmark with Brent crude closing yesterday with a year-to-date loss. These moves, whilst implying far weaker demand, should reduce inflationary pressures, with US gasoline prices already at their lowest levels since January of this year. The 10-year inflation breakeven, a market proxy for inflation expectations, fell to just 2.27% as investors wager that the current period of heightened inflation will fade.
Central banks
The Bank of Canada hiked rates by 50bps yesterday however they did so alongside a dovish statement that said that the ‘Governing Council will be considering whether the policy interest rate needs to rise further.’ Whilst this does not mean that the Bank of Canada has necessarily reached its terminal rate, that will ultimately be driven by the change in the rate of inflation, it is the closest we have had this cycle to a ‘pause’ in rate rises. With many in the market hoping for a 25bp rate rise from the Bank, Canadian government bonds underperformed yesterday despite the more dovish overtones within the policy statement.
What does Brooks Macdonald think
Next week’s Fed and ECB decision will, alongside the US CPI print, set the scene for December. Unhelpfully for the ECB, the latest inflation survey saw upgraded expectations of 1-year Euro Area inflation. The central bank will be far more concerned about medium term expectations such as the 3-year rate which remained unchanged at 3%, however the ECB and the Fed not only need to tackle actual inflation but also consumer and business expectations. This is one of the reasons why we should expect continued hawkish rhetoric from those two banks even if their actions become softer in the coming months.
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||||||||||||||
| TR | TR | TR | TR | |||||||||||||||||||
| MSCI AC World GBP | -0.8% | -4.6% | -0.9% | -8.1% | ||||||||||||||||||
| MSCI UK GBP | -0.4% | -1.0% | 3.0% | 7.4% | ||||||||||||||||||
| MSCI USA GBP | -0.6% | -5.9% | -2.6% | -9.1% | ||||||||||||||||||
| MSCI EMU GBP | -0.6% | -1.3% | 4.1% | -8.0% | ||||||||||||||||||
| MSCI AC Asia ex Japan GBP | -2.1% | -2.9% | 4.2% | -11.4% | ||||||||||||||||||
| MSCI Japan GBP | -0.7% | -2.1% | 1.7% | -7.8% | ||||||||||||||||||
| MSCI Emerging Markets GBP | -1.8% | -3.6% | 0.8% | -11.5% | ||||||||||||||||||
| Bloomberg Sterling Gilts GBP | -0.1% | 0.4% | 4.7% | -21.4% | ||||||||||||||||||
| Bloomberg Sterling Corps GBP | 0.1% | 0.8% | 5.3% | -17.2% | ||||||||||||||||||
| WTI Oil GBP | -3.4% | -12.7% | -26.1% | 6.0% | ||||||||||||||||||
| Dollar per Sterling | 0.6% | 1.2% | 6.0% | -9.8% | ||||||||||||||||||
| Euro per Sterling | 0.2% | 0.3% | 1.1% | -2.3% | ||||||||||||||||||
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||||||||||||||
| TR | TR | TR | TR | |||||||||||||||||||
| MSCI AC World USD | -0.4% | -2.3% | 5.1% | -17.0% | ||||||||||||||||||
| MSCI UK USD | 0.0% | 1.3% | 9.3% | -3.0% | ||||||||||||||||||
| MSCI USA USD | -0.2% | -3.7% | 3.4% | -17.9% | ||||||||||||||||||
| MSCI EMU USD | -0.2% | 1.1% | 10.5% | -16.9% | ||||||||||||||||||
| MSCI AC Asia ex Japan USD | -1.7% | -0.6% | 10.5% | -20.0% | ||||||||||||||||||
| MSCI Japan USD | -0.3% | 0.2% | 7.9% | -16.7% | ||||||||||||||||||
| MSCI Emerging Markets USD | -1.5% | -1.4% | 7.0% | -20.1% | ||||||||||||||||||
| Bloomberg Sterling Gilts USD | -0.3% | 2.8% | 11.4% | -29.2% | ||||||||||||||||||
| Bloomberg Sterling Corps USD | -0.1% | 3.2% | 12.0% | -25.4% | ||||||||||||||||||
| WTI Oil USD | -3.0% | -10.6% | -21.5% | -4.3% | ||||||||||||||||||
| Dollar per Sterling | 0.6% | 1.2% | 6.0% | -9.8% | ||||||||||||||||||
| Euro per Sterling | 0.2% | 0.3% | 1.1% | -2.3% | ||||||||||||||||||
| Bloomberg as at 08/12/2022. TR denotes Net Total Return | ||||||||||||||||||||||
Please check in again with shortly for further relevant content and news.
Chloe
08/12/2022