Market Update

The provided table illustrates a positive shift in the markets, diverging from the recent pessimism that prevailed in preceding weeks. This week, market sentiments turned optimistic as investors closely monitored decisions from the Federal Reserve and the Bank of England.
In the United States, the Federal Reserve chose to maintain its current interest rate within the expected range of 5.25% to 5.50%. The Fed acknowledged that the complete impact of their tightening policies is yet to be fully realized due to policy lags. The economy displayed resilience, surpassing expectations with robust data, mainly attributed to strong consumer spending fueled by a tight labor market. Fed Chair Jerome Powell acknowledged the tightening of financial conditions driven by higher long-term bond yields, indicating potential implications for future monetary policy, which will be closely observed.
Powell's comments led the market to speculate that the next move in interest rates might be a cut, although the strength of the US economy, evidenced by a 4.9% GDP rise in Q3, and the robust labor market, suggest that a rate cut might not occur until 2024. Stocks responded positively to a slowdown in the US labor market, with 150,000 jobs added in October, falling short of the expected 180,000. The unemployment rate also rose to 3.9%, the highest since January 2022. Weakness in labor market data could support the case for the Fed to refrain from further rate hikes this year.
The Bank of England also maintained its base interest rate at 5.25% and revised its growth projections for the UK economy. Governor Andrew Bailey emphasized the effectiveness of higher interest rates in addressing inflation concerns. However, he cautioned against complacency, stating that inflation remains too high. The bank anticipates a decline in inflation, primarily due to decreasing energy prices, although potential inflation risks from events in the Middle East persist.
Despite warnings from central banks against premature rate cut considerations, traders speculated that prolonged high-interest rates might lead to substantial rate reductions in the coming year. In these uncertain times, policymakers must delicately balance monetary policy with economic growth needs amid a slowing economy. While rate cuts might not be imminent, the possibility of further adjustments lingers.
Looking ahead, next week's anticipated data includes China's balance of trade, UK retail sales, and European retail sales. Additionally, China's inflation data, US initial jobless claims, and UK GDP figures are expected. Stay tuned for these updates in the evolving economic landscape.