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Weekly Market Update

Take Two: Fed Chair signals faster rate hikes are possible; China sets new growth target

  • 13 March 2023 (3 min read)

What do you need to know?

Federal Reserve chair Jerome Powell signalled the possibility of a return to larger interest rate increases at the US central bank’s 21-22 March meeting. He told the House Financial Services Committee that “if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes”, although added the following day that no decision had been taken with regards to March’s meeting yet. The Fed’s decision is likely to be highly-data dependent, reflecting mixed labour market data this week and upcoming inflation and retail sales releases. Meanwhile, the Bank of Canada became the first major developed market central bank to pause the current tightening cycle as it left its policy rate unchanged at 4.5%.

Around the world

Chinese policymakers set a growth target of “around 5%” for 2023 as the world’s second largest economy gears up following the lifting of its strict COVID-19 policy. The new target, announced at the annual gathering of the National People’s Congress, was more modest than some analysts had expected, and comes after China’s economy expanded by 3% last year - far short of the “around 5.5%” goal. Outgoing Premier Li Keqiang said the economy was already “staging a steady recovery and demonstrating vast potential and momentum for further growth”. Meanwhile, Chinese annual consumer inflation eased to its slowest rate in a year — to 1% in February from 2.1% in January— below market expectations.

Figure in focus: 0%

The Eurozone economy stalled in the fourth quarter (Q4) of 2022. GDP growth was revised down to 0% from an earlier estimate of 0.1%, as household spending fell, likely reflecting inflation pressures. It follows growth of 0.4% in Q3. Separate data showed the bloc’s employment growth revised down slightly to 0.3% from the flash reading of 0.4%. Meanwhile, European Central Bank President Christine Lagarde pledged she “will do whatever it takes” to restore price stability. Elsewhere, Japan’s economy expanded at an annualised rate of 0.1% in Q4, against a preliminary estimate of 0.6%, but up from a 1.1% contraction in Q3 – reflecting frail consumption and a weak services recovery.

Words of wisdom:

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What’s coming up

India’s inflation numbers for February are announced on Monday - prices accelerated to 6.52% on an annual basis in January of 2023, a three-month high. But all eyes will be on Tuesday’s US Consumer Price Index inflation announcement; in January, inflation eased slightly to 6.4%, from 6.5% in December. The Bank of Japan publishes the minutes from its latest monetary policy meeting on Wednesday while the European Central Bank holds its own meeting on Thursday. The Eurozone reports final inflation data for February on Friday – the last estimate showed consumer price inflation has dropped to 8.5%, its lowest since May.

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    Disclaimer

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

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