November 14, 2022 8:11:38
Following strong gains in equities last week, markets across Asia are a little mixed overnight, in part due to comments from US Fed policymaker Waller that stocks had overreacted to last week’s US inflation data and that interest rates had ‘a way to go’. China equities, however, are trading higher following the government’s announcement of a 16-point plan to help the Chinese property market. That comes despite further increases in the number of daily Covid cases being reported across the country.
Meanwhile, ahead of this week’s UK Autumn Statement, Chancellor Hunt made several media appearances yesterday in which he warned that he will have to make ‘very difficult decisions’ in order to balance the books.
Last week’s lower than expected US CPI inflation data for October helped reinforce market expectations that global interest rates may not need to rise as much as previously expected. However, US Federal Reserve officials have cautioned against reading too much into the data warning that further interest rate hikes are likely albeit probably at a slower pace than seen at the November meeting where the Fed hiked by 75bp. Nevertheless, market expectations for the peak in US rates, which had moved above 5% after what was perceived as a ‘hawkish’ November Fed monetary policy update, have now dropped back below that level.
Over the coming week, markets will be looking for further clues on the policy outlook across a number of major economies, including the US, UK and the Eurozone. For today, US Fed members Brainard and Williams are due to speak at separate events, while across the Eurozone the focus will be on speeches from officials including Panetta, Centeno, Guindos and Nagel. On the data front, today’s focus is limited to the September Eurozone industrial production report. Despite declines in Spain, France and Italy, a strong rise in German factory output is forecast to have a driven a 0.7% monthly rise in Eurozone industrial output.
A busy week for domestic economic data kicks off early tomorrow morning with the latest UK labour market report. There have been some tentative signs that the labour market is cooling, and vacancy data may provide a further indication that demand for labour has eased further. However, those are still very elevated, and the unemployment rate is predicted to have held at a multi-year low of 3.5% in the three months to September. That suggests the market is still very tight pointing to continued upward pressure on wages for now and we predict that underlying earnings growth (excluding bonuses) will have moved up again.
The US dollar has started the week slightly firmer against most of its peers but remains significantly down on its level prior to last week’s softer-than-expected US inflation report. GBP/USD had moved above 1.18 for the first time since August but has subsequently eased back below this level this morning.
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