Please see the below article from Brooks Macdonald, providing an update on latest economic and markets news. Received yesterday afternoon – 12/12/2022
US equities and oil sold off as economic growth concerns returned last week
Last week equities fell with the US underperforming Europe as it unwound its rally post US Federal Reserve (Fed) Chair Powell’s speech the week before. It was a broad based sell-off with domestic focused US mid cap companies underperforming as economic growth fears rose. Bonds also took part in the sell-off with yields rising over the week however it was oil that saw some of the largest moves with Brent Oil falling by over 10%.
The last US CPI release of 2022 remains crucial to market sentiment
Despite the size of sell-off that we saw last week, that was the quiet week in terms of data and central banks. Before the market moves onto central banks this week it must contend with the last US inflation print of 2022 on Tuesday. The consensus expects Core Consumer Price Index (CPI) to rise by 0.3% over the month, bringing the year-on-year reading down from 6.3% to 6.1%. The headline figure is also expected to grow by 0.3% on the month, bringing the annual rate down from 7.7% to 7.3%.
The Fed, ECB and BoE are all expected to downshift the size of their interest rate moves this week
The market remains confident that the Fed will raise US interest rates by 50bps on Wednesday and barring a huge surprise within the CPI figures it is likely to push ahead with this ‘downshift’ from the 75bps of previous months. The US CPI reading will influence the Fed’s thinking around the tone of the statement as well as determining how high Fed members expect the US terminal rate to reach (contained within the ‘dot plot’ of interest rate expectations). After the Fed on Wednesday, the European Central Bank (ECB) and Bank of England conclude their meetings on Thursday with the ECB expected to raise interest rates by 50bps, another downshift, alongside hawkish messaging around the need to tackle inflation. The third downshift is expected from the BoE, raising rates by 50bps after 75bps of rate rises in November.
While we are expecting three central banks to downshift this week, the Bank of England is likely to be the only bank to present a dovish narrative. The dovish tone is likely to be catalysed by fears over the economic impact of over-tightening rather than a belief that UK inflation is under control. Should the Bank raise rates by 50bps this week, it is still expected to raise interest rates by a further 1% before the middle of next year.
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Alex Kitteringham
13th November