This week
It’s that time of year again, a new year and a new start. After a tough year for global markets, investors will be looking for the rampant inflation that so blighted returns in 2022 to soon abate, allowing central banks to start considering a slowing down and an eventual reversal of the hasty rate rises introduced last year.
Such optimism can even be seen embodied in the name of the new month, with January being christened after the Roman god of new beginnings and doorways, Janus (Ianuarius). Indeed, for those watching the property market this week, the thought of a doorway was enough to put a dampener on anyone’s new year, as news from the Bank of England on Wednesday showed the domestic housing market slowed dramatically during November. The numbers served to underscore the effects of rising interest rates and the cost of living crisis as lenders approved the lowest level of mortgages since June 2020, when the housing market slowed to a crawl following the onset of the COVID-19 pandemic.
Janus is famously portrayed as a two-faced god, looking both backward and forwards, with investors turning the other cheek also worked this week, focussing on more positive news. Highstreet heavyweights such as Next, Boots, Greggs and B&M all reported strong Christmas trading numbers, despite depleted consumer confidence, rail strikes and severe weather. Clothing retailer, Next, said that sales rose by 4.8% in the nine weeks to 30 December after a "dramatic boost" from the cold snap last month, prompting consumers to indulge in new jumpers and coats.
Giving us something of a handle on what investors should expect in the US, the Federal Reserve published the minutes of their most recent meeting, held last month. Interestingly all U.S. central bank officials agreed they should slow the pace of their aggressive interest rate increases but were worried about any "misperception" in financial markets that their commitment to fighting inflation was being shown the door. A lot of what the Fed plans to do this upcoming year still hinges on how “sticky” inflation will be, but it was made clear that we shouldn’t expect a full pivot any time soon:
"No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023"
Helping the frame what had been a jam-packed week nicely was the release of US non-Farm Payroll numbers, a piece of data highly valued by the Federal Reserve. The US added 223,000 workers to its labour force compared to consensus of 200,000, whilst average earnings rose slightly less at 0.3% compared to an anticipated 0.4%. With somewhat mixed data, it seems the threshold for investor relief was met, with equity markets initially acting positively towards the news.
Next week
As the sun rises on the first full working week of the year, it is apt that the upcoming five days of data flow begin in the Land of the Rising Sun.
With much of the west’s central banks battling rampant inflation through raising interest rates, the Bank of Japan has been somewhat comparatively sheltered, although surging raw material costs have pushed inflation well above the bank’s 2% target. Interestingly, with public discontent over rising prices hurting approval ratings, Prime Minister, Fumio Kishida, last week urged firms to offer wage increases exceeding the rate of inflation. With this in mind it will be interesting to see the Tokyo Core CPI numbers released, detailing the change in the price of goods and services purchased by consumers in and around Tokyo, Japan’s most populated city, on a yearly basis.
From Japan to Sweden, not the most well-trodden path, but a necessary one as we catch up with Jay Powell, Chair of the US federal Reserve, Due to participate in a panel discussion titled "Central Bank Independence and the Mandate – Evolving Views" at the Riksbank’s International Symposium on Central Bank Independence, in Stockholm. Whilst not talking about central bank policy directly, due to his position and influence, any clues that are dropped about future rate policy will be heavily scrutinised by the market, making his address hugely important.
Investor attention will stay in the US for most of the Week as the American Bureau of Labor Statistics releases the nation’s Consumer Price Index reading. Potentially setting the tone for markets for the upcoming weeks, investors will be hoping that a clear and sustained pattern of decreasing inflation begins to manifest sooner rather than later as the US central bank’s rate rises begin to have an effect.
The end of the week will be wrapped up with domestic GDP figures. Measuring growth on a monthly basis, Friday’s data will quantify the total value of all goods and services produced domestically and give us some idea of how close to what seems the most hotly anticipated recession in years. With many economists believing the UK is already in recession, the numbers should make for fascinating reading as we head into the new year.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 06 January 2023.