This week

After last year’s shenanigans at Hollywood’s biggest showpiece, the Academy of Motion Picture Arts and Sciences has reportedly created a “crisis team” to respond to any mishaps during this weekend’s ceremony. Whilst the bright and the beautiful of the entertainment industry were busy making sure there would be no upcoming surprises, the glitterati of the finance sector have been doing the exact same.

Enter the leading man, US Federal Reserve Chair, Jay Powell, delivering his own version of a slap in the face to those who were hoping that the central bank would not be raising rates as quickly. Speaking at the Semi-Annual Monetary Policy Report before the Senate Banking Committee, in Washington DC, Powell made it clear that the Fed will likely need to raise interest rates more than expected in response to recent strong data. Commenting that “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," took markets somewhat by surprise, with the S&P 500 index dropping more than 1.5%. Unsurprisingly, the U.S. dollar was on the rise whilst yields on the 2-year Treasury climbed above 5%, the highest since 2007.

One of the main actors in provoking the Fed’s worries that more work is required to battle inflation has been the persistently strong US labour market. Wednesday saw the US Bureau of Labor Statistics release their job openings data, offering some solace on a headline level but with a second take, behind the scenes, many Fed officials will be less pleased.

Upward revisions to November (+300k) and December (+220k), show how resilient the US jobs markets has been, for context, December's job openings level the was the highest since July 2022.

Although the job openings rate fell 0.3% to 6.5% but remains well above the pre-pandemic average of 4.4%. Construction (-240k), leisure & hospitality (-190k), and finance (-150k) led the decline, with the drop in leisure & hospitality representing an expected pullback from the large gain in December. The only material offset was in professional and business services, which gained 95k openings.

Interestingly, the number of those walking off set fell 5% to 3.9 million in January, driving the quits rate 0.1% lower to 2.5%, the lowest level since January 2021. However, this remains well above its series average of 1.9%, highlighting workers' confidence that the labour market is still strong enough to explore other opportunities.

As frequent movie goers will tell you, sequels can be a bit hit or miss. So was the case with the second instalment of US employment data, the much-anticipated Non-Farm Payrolls, detailing the change in the number of Americans joining the labour force over the month. Heavily valued by the Federal Reserve, the data showed 311,000 Americans joined the labour market last month, higher than the 224,000 expected, once again showing that the jobs market remains red hot.

In what was a very US-focussed week, Friday at least saw domestic GDP figures arrive on the big screen. Making something of a comeback, monthly GDP is estimated to have grown by 0.3% in January 2023, after falling by 0.5% in December 2022. Looking at the broader picture, GDP was flat in the three months to January with the more dominant services sector growing by 0.5% in January 2023, after falling by 0.8% in December 2022.

Next week

The soothsayer’s warning to Julius Caesar “Beware the Ides of March” is one of the more famous lines to have been penned by William Shakespeare, forever branding the 15 March with the negative connotations of conspiracy and bad omens…

Interestingly, the Ides of March actually have a non-threatening history. Periods called Kalends (where our word for calendar comes from), Nones and the aforementioned Ides were simply markers used by the Romans to reference dates in relation to lunar phases. Ides simply referred to the first new moon of a given month, which usually falls between the 13th and 15th.

“Infamy, Infamy, they’ve all got it in for me!” declared Kenneth Williams when playing Julius Caesar in Carry on Cleo and although not quite to the same extent, European Central Bank President, Christine Lagarde, could be forgiven for sharing that sentiment. With the ECB continuing to battle Eurozone inflation with a relatively split monetary policy committee, Ms Lagarde is highly likely to deliver a much anticipated 0.5% rate hike, with many expecting her to signal similar moves to come going forward.

With the US Federal Reserve also signalling that they will look to raise rates at a quicker pace depending on data, all the omens are there for a volatile day on Tuesday, as the world’s largest economy releases its latest Consumer Price Index (CPI) data. Detailing the change in price of goods and services purchased by consumers on both a monthly and yearly basis, the numbers should have a considerable impact on market expectations towards future rate policy. If the numbers do not show a slowdown in inflation, we could well see a return to 0.5% rate increases for the Fed going forward.

The Romans considered the Ides of March a deadline for settling debts and with this knowledge, domestic claimant count changes should also make for interesting reading. Also released on Tuesday, the numbers will allow us to partly gauge how strong the domestic labour market is, detailing the change in the number of people claiming unemployment-related benefits during the previous month.

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 10 March 2023.