Market Update

This week was marked by significant central bank decisions that shaped investor sentiment and global economic outlooks.
The Federal Reserve, meeting on Wednesday, held interest rates steady at 5.25%-5.5%, as anticipated. However, investors were pleasantly surprised by the Fed’s revised outlook for the upcoming year. The latest adjustments to the “dot plot,” illustrating rate expectations of Federal Open Market Committee members, revealed a more dovish stance. The median projection now indicates 75 basis points of rate cuts in 2024, signaling a conclusion to the tightening cycle and anticipation of at least three rate cuts in the coming year.
In the U.S., November retail sales surpassed expectations by rising unexpectedly by 0.3%, signaling a strong start to the holiday shopping season. Sectors like food services, non-store retailers, and health and personal care saw notable increases.
The Bank of England (BoE) voted 6-3 to maintain the base rate at 5.25%, emphasizing the necessity of a prolonged restrictive monetary policy to combat inflation. Minutes from the meeting showed policymakers balancing the risks of insufficient policy tightening against the risks of excessive tightening given pending policy impacts. Policymakers expressed readiness to raise borrowing costs if persistent inflation emerges, especially considering recent economic data showing a contraction of 0.3% in October, following a 0.2% rise in September. GDP remained stagnant in the three months leading up to October compared to the preceding three months.
In Europe, the European Central Bank (ECB) maintained interest rates at multi-year highs for the second consecutive meeting. President Lagarde underscored a data-dependent approach and stated there were no discussions about rate cuts. The ECB downgraded growth and inflation forecasts for the euro area, hinting at a potential shift in monetary policy towards interest rate reductions by 2026.
This week, positive risk sentiment followed central bank decisions, with U.S. markets closing higher, including a 2.49% increase in the S&P 500. The Dow Jones Industrial Average reached a new record high, set for its best weekly performance since 2019. Additionally, data released on Friday showed China's industrial production rose by 6.6% year-on-year in November 2023, exceeding market forecasts of 5.6%. This was the fastest pace of growth in industrial production since February 2022. Retail sales also surged, rising 10.1% year-on-year in November 2023, much higher than the 7.6% increase in the previous month. Asian markets, particularly Hong Kong's Hang Seng, reflected positive signals from China's economy.
Looking ahead, the upcoming week is relatively quiet on the data front as we approach Christmas. In the UK, we expect CPI data, retail sales figures, and finalized GDP numbers for Q3. In the U.S., final Q3 GDP data, durable goods orders, and core PCE figures are anticipated, along with interest rate decisions from the Bank of Japan and China.