Market Update

Global equities managed to end the week on a slightly higher note, despite persistent unrest in Hong Kong and the commencement of public hearings in Donald Trump's impeachment inquiry. This positivity was driven by optimism surrounding a potential partial trade deal between the US and China.
Adding to this positive sentiment was Federal Reserve Chairman Jay Powell's Congressional testimony. Powell reiterated his unchanged stance since the Fed's monetary policy decision on October 30, 2019, emphasizing the strength of the US employment market and the sustainability of the country's economic expansion. Consequently, US interest rates remain on hold after three consecutive reductions, bringing the benchmark rate down by 0.75% to a range of 1.5%-1.75%.
Although recent US data, including improvements in employment, retail sales, and ISM manufacturing, support Powell's confidence, risks to his outlook persist. His optimism about a swift global economic growth rebound might be overly optimistic. Additionally, despite new tariffs on Chinese goods, core US inflation slowed to 2.3% from 2.4% on a year-on-year basis. The softening of core goods prices suggests that the Fed's preferred inflation measure, the core PCE deflator, is likely to remain below their 2% target, reinforcing the need for a more accommodative monetary policy.
Furthermore, recent data revealed a fourth consecutive monthly drop in Chinese producer prices in October, potentially leading to disinflation globally. This development presents new challenges for major global central banks that are already struggling to boost inflation.
In the UK, Q3 GDP rebounded by 0.3% as expected, preventing the country from slipping into a technical recession, which is defined as two successive quarters of economic contraction. However, this modest recovery offers little cause for celebration. The ongoing weakness in manufacturing and business investment underscores the need for further stimulus and lower interest rates, in addition to clarity on the Brexit situation. Notably, the Q3 expansion was driven solely by a robust July, as the economy contracted by 0.2% in August and 0.1% in September, indicating a probable weak Q4 GDP performance.