Week in Review: Central Banks Stay Hawkish

This broke the past cycle of four consecutive 75 basis point hikes in recent months. The Fed also highlighted that it would do more to restrain the economy than previously expected. The point where officials expect to end rate hikes has been projected to be 5.1%, an increase from 4.6% when they last issued forecasts in September. Following the actions of their American counterparts, both the Bank of England (BoE) and the European Central Bank (ECB) also increased interest rates by 50 basis points, taking them to 3.5% and 2.0% respectively.The US Bureau of Labor Statistics reported that inflation, measured by the Consumer Price Index (CPI), declined to 7.1% on an annual basis in November from 7.7% in October. This CPI reading came in below the market forecast of 7.3% and it was the second consecutive month where the actual value was below market expectations. Although inflation has moderated from its recent peak of 9.1% in June, it’s still higher than at any point since the early 1980s.Similar to the US, inflation in the UK also came in slightly below expectations at 10.7% in November. According to a group of economists polled by Reuters, they had forecasted an annual increase in CPI of 10.9% in November after October saw an unexpected climb to a 41-year high of 11.1%. The Office for National Statistics said the largest contributors came from housing and household services (principally from electricity, gas, and other fuels), and food and non-alcoholic beverages, while the leading detractors came from transport, particularly motor fuels. The Office for National Statistics also reported that the UK’s jobless rate rose for a second consecutive month to 3.7% in the three months to October from 3.6% in the three months to September. There were also signs in the data presented that indicated that some of the inflationary heat in the labour market is cooling as the economy stumblesChina’s economic activity fared worse than expected in November. According to the National Bureau of Statistics (NBS), retail sales fell by 5.9% in November, a much greater drop than the 3.7% decline forecasted.  Industrial production grew by 2.2% in November, missing the forecast of 5.6%. Unemployment also worsened last month rising to 5.7%, the highest level in six months. China’s economic slump happened before the government abruptly dropped its COVID zero policy.

All the major US indices ended the week lower following the release of the Fed’s December policy meeting statement. The Dow Jones fell by -1.66% followed by the S&P 500 which fell by -2.08% and the tech-heavy Nasdaq which fell by -2.72%. Euro Stoxx 50 and FTSE 100 indices closed with negative weekly moves of -3.52% and -1.93% respectively. Chinese stocks also fell this week because of the weaker-than-expected economic data released. The Shanghai Composite Index was down -1.22% and the Hang Seng index was down -2.20%. Japan’s Nikkei 225 also ended the week lower with a weekly market move of -1.34%. 

Market Moves of the Week:

South Africa’s headline consumer inflation slowed to 7.4% year-on-year in November from 7.6% in October. Core inflation, which excludes the price of food, non-alcoholic beverages, fuel, and energy, remained unchanged on an annual basis in November at 5%. The headline consumer inflation peaked in July, reaching a 13-year high of 7.8%, a reflection of global trends as food and fuel prices soared. Since then, inflation has been on a downward trajectory.  Rates are expected to continue to rise in 2023, but the pace and scale of the hikes should slow if inflation maintains this current trend.Eskom has confirmed that André de Ruyter has resigned as CEO of the state power utility amid the current worsening power crisis. Following his resignation, the power utility has dismissed reports that the board chairperson, Mpho Makwana, will take over as the interim CEO. De Ruyter’s last day at Eskom will be the 31st of March 2023. This extends beyond his 30-day notice period while they search for a suitable candidate to replace him.The JSE all-share index fell by -2.09% this week, driven by losses in the resource sector which fell by -3.34%, followed by industrials (-1.64%), then the financials (-1.58%). The property sector was the only positive of the week, with a weekly market move of 0.85%. The rand weakened this week, ending at R17.55 to the dollar.

Chart of the Week:

The Federal Reserve has been raising rates fast in 2022, and the impact may finally be showing in the headline inflation numbers. That has opened the door for smaller rate increases.