This week

It was quids in for investors this week as both the pound and global markets continued their end of year recovery, taking heart from a range of stronger than anticipated economic data releases as well as minutes from the US Federal Reserve’s latest meeting, showing a growing willingness to slow the pace of their rate hikes.

Wednesday saw the value of the much-maligned Great British quid reach its highest level against the US dollar since former Prime Minister Liz Truss entered office at the end of August. Strengthening against a basket of developed currencies throughout the first half of the week, sterling hit $1.21 on Thursday, enjoy a backdrop of consensus beating Purchasing Manager Index (PMI) readings, outperforming both Services and Manufacturing estimates. Whilst both readings still showed that the two major sectors are in contraction territory, the better than forecast readings did buoy investor sentiment, helping the more domestically focussed FTSE 250 to rise 0.4% on the day also.

Interestingly, it is thought that the term “quid” could come from the Italian “scudo”- the name for a number of currency units used in the country until the 19th Century. Indeed, it was quid pro quo in terms of PMI data on the continent this week too, consistent with the pattern of domestic data, as Eurozone Manufacturing and Services readings also came in higher than anticipated.

The better than expected European data was supportive for the euro. Meanwhile, the US dollar was hindered by Federal Reserve minutes that showed that a "substantial majority" of policymakers agreed it would "likely soon be appropriate" to slow the pace of interest rate hikes. Bond yields also made their way lower on a spate of mixed US news throughout the week.

Data showed the number of Americans filing new claims for unemployment benefits rose more than expected last week, whilst U.S. business activity contracted for a fifth straight month in November. Consumer sentiment ticked higher and home sales rose above expectations. With various parts of the US economy now looking like they are coming under some strain from a prolonged period of interest rate rises, investors began to take heart that the Fed could start contemplating lower hikes going forward.

From quids to squids, it was also commented on this week that the cost of living crisis is having a major impact on seafood prices, which could be set to spiral further on the back of continued supply chain issues and worker shortages. Lobsters, scallops and crab may all be off the menu soon as port congestion and rising transportation issues make popular fish an increasingly difficult perch-ase. Fish and Chip shops have already been battered this year as the price of cod alone has risen by 50%.

Next week

The coming week should start with all kinds of addresses, both at home and abroad as a combination of Nationwide Building society and the European Central Bank lay the foundations for a busy week ahead.

Economists should wake up to Nationwide’s Housing Price Index data on Monday morning, potentially making for interesting reading, especially as the housing market continues to cool Detailing the change in the asking price of homes mortgaged by the provider, the data acts as the UK's earliest report on housing inflation. However, the housing industry's health should not be overlooked due to the wider industry activity it can spur. The property market has a wide-reaching impact on banks, mortgage providers, estate agents and even greatly impacts DIY and furniture companies who should benefit from increased activity in the sector.

Due to testify before the Committee on Economic and Monetary Affairs of the European Parliament, Christine Lagarde, President of the European Central Bank, should give possible hints as to future rate policy. At a time when various ECB officials have commented over the past week or two, that the bank will look to slow the rate in which it is increasing its borrowing costs, Lagarde’s words should make for interesting listening.

The remainder of the week should see attention shift to the US as a raft of data helps set in place the building blocks for the Federal Reserve’s next rate decision. The middle of the week will see US preliminary GDP as well as a press conference from Fed Chair, Jay Powell. However, the end of the week brings us possibly two of the most influential pieces of data the US central bank examine when assessing how it should hike rates. First Thursday brings with it its Core PCE Price Index figures, a reportedly favoured piece of data by the Fed when assessing inflationary pressures in the world’s largest economy.

The first Friday of the month, as ever, brings US Non-Farm Payroll data, released on Friday. A key piece of information when determining the US central bank’s next rate move. The employment data itself will be accompanied by Average Hourly Earnings, allowing us to gauge future inflation expectations as the more consumers earn, the more they tend to spend. It all combines to be a vital piece of data for the Fed and should take on added significance considering the extra impetus put on such data going forward from Jay Powell and co.

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 25 November 2022.