Market Pulse - The week in review
Duncan Presant - Jan 11, 2023
The first week of 2023 saw limited volumes on markets, which remained choppy. We expect normal market activity to resume next week. While US markets were only marginally higher on the week, European and Chinese markets started the year with decent
THIS WEEK’S RECAP:
▪ The first week of 2023 saw limited volumes on markets, which remained choppy. We expect normal market activity to resume next week. While US markets were only marginally higher on the week, European and Chinese markets started the year with decent gains.
▪ The FOMC minutes provided details on the most recent Federal Reserve rate decision. While confirming we are approaching the end of the tightening cycle, the central bank seems to be aiming for rates to stay elevated for a prolonged period. This creates a gap between the Fed expectations and market pricing, something the central bank acknowledges.
▪ This gap in expectations will likely diminish as we get more visibility on the fall of inflation and the extent of the economic slowdown. Various macro themes (global growth, inflation, fiscal policy) are setting up to present important tactical and active investment opportunities for 2023. The pace and timing of valuation adjustment in equities, bonds, and currency will be uneven across developed and emerging markets and will be highly dependent on incoming data.
▪ On the economic data front preliminary manufacturing readings for December suggest the slowdown continued in the U.S. and Canada but stabilized across the Atlantic, in the U.K. and Europe. European inflation, while still elevated, is showing important signs of deceleration, with the core reading negative on a month-over-month basis.
The US and Canada job numbers both showed healthy gains, with unemployment rates that are still quite low. Moreover, wagerelated numbers slowed down, which is good news on the inflation front. Inflation going down with a resilient economy is clearly the goldilocks scenario for markets, but we must keep in mind that the job market is a lagging indicator.
ON DECK FOR NEXT WEEK:
▪ The latest read on North American inflation (CPI) will be released over the next two weeks (U.S. on Jan 12, Canada on Jan 17). We expect further confirmation that inflation has peaked and is readjusting lower, which should reinforce the notion that central banks are close to pausing their tightening cycle.
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