Please see below weekly market commentary received from Brooks Macdonald yesterday afternoon, which provides global economic data and market news.
- China officials set out an economic growth target of “around 5%”, a little below expectations and potentially cooling hopes for fresh stimulus later this year
- Next 8 days will be crucial for shaping the market’s outlook on jobs and inflation, with US Federal Reserve (Fed) Chair testimony to Congress plus monthly jobs and Consumer Price Index (CPI) all in the mix
- Bank of Japan’s Governor Kuroda takes his last meeting this week, as markets continue to speculate if and when his successor might change BoJ policy goals
China officials opt for a slightly-softer-than-expected economic growth target of “around 5%”
Over the weekend, China officials set out a modest economic growth target of “around 5%” for 2023, at the low end of estimates that had hoped for more than 5% or maybe even 5.5%; the implication is that it lowers, a little, hopes for the size of any fresh policy stimulus later this year. As a result, Chinese equities are lagging small gains across Asia Pacific in early trade this morning. Over in the US, equity futures are indicating up, having capped off a positive day on Friday – that was despite a stronger US ISM Services print pointing to a still-tight labour market and inflation stickiness. Turning to the week ahead, the US will dominate the news flow with the latest jobs report out on Friday, along with US Fed Chair Powell’s biannual monetary policy report to Senate and House committees tomorrow and Wednesday respectively. Elsewhere this week, we also get China CPI on Thursday, UK January GDP on Friday, as well as 3 central bank decisions this week from Australia (tomorrow), Canada (Wednesday) and Japan (Friday). Also looming on the horizon for investors is next week’s CPI print (next Tuesday) which will cap a busy next 8 days for news flow.
What markets are looking for in this week’s US monthly jobs report
This coming Friday sees the latest print for the US monthly jobs report (for February), the non-farm payrolls data. It’s always a key print for markets, but arguably more so now given the importance that the Fed has put on the strength of the jobs data as a key factor in sticking to its hawkish rhetoric on interest rates in recent months. Friday’s monthly jobs data will also be the last one ahead of the Fed’s next FOMC (Federal Open Market Committee) decision due 22 March. In terms of what to expect, Bloomberg’s estimate is for 215,000 jobs added in February (down from January’s monster gain of 517,000 where some think the mild winter weather ended up providing a bit of a boost), with the unemployment rate expected to hold at over-50-year-lows of 3.4%.
Bank of Japan’s last meeting for Kuroda, and expectations for policy change are low….for now
Also due Friday is the Bank of Japan (BoJ)’s rate decision, and it’s the last meeting for the outgoing Governor Kuroda. Expectations for any fireworks are low, given the incoming Governor Ueda (pending final voting by Japan’s parliament on his appointment) said last month that current monetary policy settings remained appropriate. That said, markets are still speculating that the BoJ might change its yield-curve-control policy framework later this year, allowing bond yields to rise. The BoJ policy direction this year could have major ramifications for markets globally – with the BoJ as the last major central bank hold-out of zero rates, it has arguably hitherto pushed Japanese liquidity overseas in the hunt for yield – but if the BoJ allows yields to rise later this year, this could suck some of that liquidity back home again, and which might end up creating upward pressure on yields in other international bond markets.
Will the Fed stick to its rate-hike down-shift path or change course?
Fed speakers in recent weeks have raised the risk of a higher terminal interest rate, with market expectations for peak rate currently at 5.439% in September this year, and vs the current Fed policy rate range of 4.5-4.75%. After last month’s nonfarm payrolls print came in well above expectations, and the recent CPI (Consumer Price Index) and PCE (Personal Consumption Expenditures) reports showed stickier-than-expected price pressures, this next set of data will be crucial. Markets are currently pricing in 29.8bps of hike in March, so split between expecting 25bps which is still seen as the most likely for now, or whether there’s a small-outside-chance of a 50bps move instead – the latter would be tough pill for markets to swallow, with the Fed so far having down-shifted its rate-hike pace from 75bps to 50bps to 25bps over the last 3 consecutive meetings.
Please check in again with us soon for further relevant content.
Chloe
07/03/2023