Market Update

This week, global stock markets surged amidst optimism that central banks might be reconsidering their assertive monetary tightening strategies. This rise occurred despite significant stock price declines in the influential tech sector. Notably, Amazon, Alphabet (Google's parent company), Meta (Facebook's parent company), and Microsoft all posted profits that fell short of market expectations.
Collectively, these four tech giants saw a staggering $350 billion evaporate from their market values. To illustrate the magnitude of this loss, it's akin to the combined market capitalizations of Shell (£170bn) and AstraZeneca (£156bn) – the UK's two most valuable companies.
Boosting the mood in equity markets, the Bank of Canada (BoC) initially provided a smaller-than-anticipated rate hike, increasing by 0.5% instead of the predicted 0.75%. Subsequently, on Thursday, 27 October 2022, while the ECB did double the Eurozone interest rates to 1.5%, they paired this with a statement suggesting that future hikes might be more modest, indicating a nearing end to the current tightening phase.
In other central bank moves, both Japan and Brazil chose to maintain their interest rates.
While it might appear counterintuitive not to pursue aggressive rate hikes amidst the prevailing inflation highs, it's crucial to consider the context. The synchronized global inflation we're observing is primarily rooted in COVID-19 related supply chain disruptions, further intensified by the Ukraine conflict. As these factors begin to subside, they'll set the stage for next year's baseline effects, potentially leading to a synchronized global deceleration in inflation.
Supporting this outlook, this week's PMI data underscores our belief in an impending slowdown in the global economy. This fosters hopes that the Fed will adopt a similar stance in their upcoming meeting on 2 November 2022.