Please see below the final article from Brooks Macdonald of the year, with an update of the last weeks economic and market events. Received late this afternoon – 22/12/2022
What has happened
Most equity markets climbed and global bond benchmarks steadied on Wednesday, following the sell-off earlier in the week that had been driven by the Bank of Japan (BoJ) meeting output. As a recap, the BoJ had widened the tolerance band for its ‘around zero’ target for its 10 year Japanese government bond (JGB) yield from +/-25bps previously, to +/-50bps, and catching traders by surprise. The reverberations appeared to ease back a little on Wednesday and coming into Thursday, with the 10 year JGB yield currently around 0.40%. Boosting sentiment on Wednesday was the follow-through from better-than expected (off-cycle) earnings results from FedEx and Nike who had both reported after the market close on Tuesday, as well as a better than expected US consumer confidence survey print for December. Overnight, Asian equity markets are higher following a slew of positive comments from Chinese authorities pledging more support for China’s real estate industry as well as for the broader Chinese economy.
US PCE November inflation data due on Friday
On Friday we are due to get the last major US inflation reading for 2022, with the publication of PCE inflation (Personal Consumption Expenditures price index) for November. The core rate, which excludes more-typically-volatile food and energy components, was up 5% year on year in October, down from September’s 5.2%. Historically, PCE inflation has tended to sit a little below CPI (Consumer Price Index) inflation, in part because the way that the PCE index is constructed. The PCE index effectively allows for a greater degree of substitution between similar goods and services, reflecting consumer switching behaviour from relatively high vs low priced substitutes over time.
Russia “no limitations” on Ukraine invasion spending as Zelenskyy travels to US
Russia President Putin on Wednesday said that Russia has “no limitations” on military spending for the war in Ukraine. Putin’s comments coincided with Ukraine President Zelenskyy’s first trip outside of Ukraine since the invasion, arriving in Washington, DC on Wednesday to meet with US President Biden and address US Congress, pressing for further aid and additional sanctions on Russia. Biden announced that the US would provide $1.85bn in additional military assistance for Ukraine, including the first-ever transfer of a US Patriot missile defence system to Ukraine. According to the US State Department, the US has spent $20bn in security assistance to Ukraine.
What does Brooks Macdonald think
Over the past week, investors have had to deal with a trio of relatively hawkish surprises out from the US Federal Reserve, the European Central Bank, and the Bank of Japan. Collectively, these three central banks have generated a risk-off flavour, which is competing in markets with the more constructive news around the China reopening narrative. In the near-term these themes suggests something of a tug-of-war for sentiment as markets look forward to 2023.
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From Steve and all at People and Business we would like to wish you a Merry Christmas and a Happy New Year.
22nd December 2022