Market Update

This week saw a deceleration in interest rate hikes by major central banks. The Bank of England, the Federal Reserve, and the European Central Bank (ECB) all implemented a 50 basis point increase, aligning with market predictions.
The Bank of England's decision, endorsed by a 6-3 majority, was to elevate interest rates to 3.5%. Its governor, Andrew Bailey, anticipates a considerable decline in inflation by mid-next year. He emphasized the necessity to strike a balance—amplifying borrowing expenses without stifling economic expansion. UK unemployment claims surged by 30,500 in November, marking the most substantial rise since February of the preceding year. On a brighter note, UK inflation receded to 10.7% the previous month, descending from October's 11.1% peak, largely due to reductions in transport costs. Bailey interpreted the recent inflation figures as a hint of subsiding inflationary pressures, observing them to be below bank projections.
Conversely, both the ECB and the Fed indicated more rate hikes on the horizon. Jerome Powell, the US Fed Chair, asserted the intent to persist with rate increases through 2023. He warned of the ramifications of insufficient rate augmentation, cautioning against entrenched inflation. While Fed officials recognized the indications of moderating inflation, they emphasized the need for more substantial proof to be convinced of its ongoing descent. US inflation displayed signs of reduction for the fifth consecutive month, clocking in at 7.1% in November – its lowest since the previous December and falling short of the projected 7.3%.
On a different note, a Central Economic Work Conference in China saw leader Xi Jinping, along with other dignitaries, pledging to enhance consumption and invigorate the private sector. Although China's industrial output and retail sales didn't meet expectations due to ongoing easing of Covid-19 measures, the nation's administration is set to introduce more expansionary initiatives. Commitment to augmenting the gross domestic product was emphasized, with an upcoming growth target likely set at 5% or more. Given China's contribution to nearly 28% of global manufacturing output in recent times, such strategies are poised to bolster both local and international economies.