Please see below todays Daily Investment Bulletin from Brooks Macdonald:
What has happened
There was definitely a US-centric feel to markets on Thursday, with much of the economic data on investors’ radar screens coming out of the US. By the end of the day’s trading session, US equity markets finished in positive territory after something of a round-trip earlier in the day. On the latest company Q4 results season reports, it was a bit of a mixed bag – while Tesla shares were up almost 11% following better results announced after hours on Wednesday, after hours on Thursday Intel shares dropped almost 10% after missing on results as well as disappointing on guidance.
US Q4 2022 GDP
The first (advance) estimate of US calendar Q4 2022 GDP landed on Thursday with food for both the bulls and the bears. For the bulls, the print came in at an annualised quarter on quarter (QoQ) growth rate of 2.9%, down from 3.2% in Q3, but above a consensus estimate of 2.6%. Also encouraging (for the Fed in particular no doubt), was that the annualised QoQ Core (ex food and energy) Personal Consumption Expenditure (core PCE) price index decelerated to 3.9% in Q4, from 4.7% in Q3, and the slowest rate since Q1 2021. For the bears however, digging beneath the headline, around 1.5% points of GDP growth in Q4 came from a build in inventories. Underlying demand softened, as consumer spending, which accounts for around two thirds of the US economy, slowed to 2.1% growth in Q4 from 2.3% in Q3. It suggests that the Fed’s higher interest rates are starting to have a bigger impact on the economy, and it raises the risk of weaker growth going into this year, especially as the latest build in inventories might get reversed.
US jobs market
Also on Thursday, we saw the weekly initial jobless claims data (new applications for state unemployment aid, which is seen as a proxy for dismissals), which fell 6,000 to a seasonally adjusted 186,000 for the week ending 21 January. This was below a consensus estimate of 205,000 and it was the lowest level in 9 months, since April last year. The 4-week moving average fell under 200,000 for the first time since May last year. Despite the Fed having spent almost a year raising interest rates in an effort to cool the post-pandemic inflation surge, the labour market has proved to be resilient.
What does Brooks Macdonald think
The post-pandemic tightness of the US labour market has been a particular concern for Fed policy officials, whose dual-mandate is maximum employment and price stability. However, the challenge for the Fed and other central banks is that interest rates work with long and variable lags. As such, the question remains whether the interest rate hikes delivered already over the past year will prove to be enough in returning labour markets towards equilibrium in the coming months, or indeed if the hikes may have already done too much to cool labour demand ahead, risking a harder economic landing than might otherwise be necessary.
Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.
Carl Mitchell – Dip PFS
Independent Financial Adviser
27/01/2023