Economists forecast accelerating growth in China. A strong US labor market leaves the outlook for a hawkish Fed policy

By JustMarkets

Weekly US jobless claims fell last week, indicating that the US labor market remains robust. That strengthens the outlook for more hawkish Fed policy and raises fears of a recession caused by higher interest rates. As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 0.02%, and the S&P 500 Index (US500) lost 0.31%. The NASDAQ Technology Index (US100) was down by 0.35%.

Fed spokesman Kashkari said yesterday that the central bank couldn’t be too convinced by one month’s data, so the Fed needs to keep raising rates at the same pace until inflation stops rising. But the policymakers added that the economic data provide some evidence that inflation is at a plateau. Another Bullard Fed spokesman pointed out that the rate hikes so far have had “only a limited impact” on inflation. Using the so-called Taylor rule for monetary policy, Bullard suggested that the proper zone for the federal funds rate should be in the 5-7% range, above current market prices and unofficial Fed forecasts.

Equity markets in Europe were mostly down yesterday. German DAX (DE30) gained 0.23%, French CAC 40 (FR40) decreased by 0.47%, Spanish IBEX 35 (ES35) lost 0.75%, and British FTSE 100 (UK100) was down by 0.06% on Thursday.

The inflation rate in the Eurozone fell from 10.7% to 10.6% on an annualized basis. Core inflation (excluding food and fuel prices) remained at 5% y/y. The data points to a possible peak in inflation. This increases the probability that the ECB will raise interest rates by 0.5% at its next meeting rather than by 0.75%, as previously discussed.

The UK government on Thursday unveiled an extensive fiscal plan aimed at closing the hole in finances and restoring confidence in the British economy. Finance Minister Jeremy Hunt, in a statement, outlined spending cuts and £55 billion worth of tax increases. The energy industry will face an increased tax on contingencies from 25% to 35%. Meanwhile, support for households to pay their energy bills will be reduced, with bills rising from £2,500 a year to £3,000 a year from April 2023. The UK GDP is projected to recover to pre-pandemic levels in Q4 2024.

According to Fiscal Watchdog, Brexit has had a significant negative impact on UK trade, reducing both the total volume of trade and the number of trade relationships between British and European firms. The Fiscal Watchdog said this in a forecast prepared for the government.

The European Parliament has agreed to a resolution recognizing Russia as a state sponsor of terrorism, a member of the European Parliament said. The resolution is expected to be discussed and voted on by the European Parliament during a session on November 21-24.

Asian markets were trading lower yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.35%, Hong Kong’s Hang Seng (HK50) ended the day down by 1.15%, while Australia’s S&P/ASX 200 (AU200) ended the day up by 0.19%.

Goldman Sachs forecasts an acceleration of growth in China in the second half of 2023. China’s actions to mitigate two of the biggest risks facing the economy — coronavirus-related restrictions and a downturn in the real estate market — are fueling optimism for growth recovery next year, prompting economists to raise key forecasts.

The Reserve Bank of New Zealand will raise its rate by 50 bps next week and is signaling a peak rate of about 5.0%. The ongoing housing market downturn and deteriorating external conditions are arguments against a larger move of 75 bps.

Core consumer inflation in Japan accelerated to 3.6%, a 40-year-high. The weak yen has pushed up the cost of imported goods. But despite mounting price pressures that are causing growing concern among households, the Bank of Japan will not join the global trend of tightening monetary policy by raising interest rates. Bank of Japan Governor Haruhiko Kuroda reiterated on Thursday his pledge to maintain monetary stimulus to support the fragile economy.

S&P 500 (F) (US500) 3,946.56 −12.23 (−0.31%)

Dow Jones (US30) 33,553.83 −39.09 (−0.022%)

DAX (DE40) 14,266.38 +32.35 (+0.23%)

FTSE 100 (UK100) 7,346.54 −4.65 (−0.063%)

USD Index 106.64 +0.35 (+0.33%)

• – Japan National Consumer Price Index (m/m) at 01:30 (GMT+2);
• – UK Retail Sales (m/m) at 09:00 (GMT+2);
• – Eurozone ECB President Lagarde Speaks at 10:30 (GMT+2);
• – US Existing Home Sales (m/m) at 17:00 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.