Market Update

Global equity markets had a positive Thanksgiving week as optimism grew regarding the possibility of the Federal Reserve pivoting toward a more gradual pace of interest rate increases.
The week began with a noteworthy event: the US Manufacturing PMI reading, which dropped to 47.6. This marked the first time the reading fell below the critical 50-point threshold, signifying a transition from expansion to contraction, since June 2020. While the Fed is expected to maintain a tough stance on inflation, we believe this data provides the Fed with the flexibility to slow down or even pause their planned interest rate hikes.
Delving into the finer details of this data reveals that supply constraints are continuing to ease, and both input and output prices declined. These developments should provide some relief to the Fed regarding the inflationary outlook.
Later in the week, on Wednesday, November 23, 2022, the minutes from the Fed's recent monetary policy meeting (held on November 2, 2022) were released. The minutes indicated that policymakers may be slightly more dovish than Fed Chair Jay Powell had initially suggested. They noted a "slowing in interest rate-sensitive sectors, particularly housing, in response to the tightening of financial conditions," as well as a shift by households to more affordable options due to financial strains.
While it is unlikely that the Fed will halt its interest rate increases altogether, the minutes suggest that policymakers are beginning to consider the time lag involved in policy transmission. After implementing four consecutive 0.75% interest rate hikes, they appear open to a more gradual pace of increases when they convene for their next meeting on December 14, 2022.
Looking ahead to the upcoming week, the main focus will be on Friday's (December 2, 2022) release of US employment data, which includes non-farm payrolls, the unemployment rate, the participation rate, and average earnings.