Investment Institute
Weekly Market Update

Take Two: US economic growth slows, Bank of Japan announces policy review

  • 02 May 2023 (3 min read)

What do you need to know?

The US economy grew at a slower pace than expected in the first quarter (Q1), at 1.1% on an annualised basis. The consensus forecast was for 2%, following expansion of 2.6% in Q4 2022. An increase in consumer spending, particularly on cars, healthcare and eating out, was partly offset by lower inventories and residential investment. While the economy has continued to recover post-pandemic, high inflation and the impact of higher interest rates are being felt – with the Federal Reserve (Fed) expected to raise rates by a further 25 basis points this week. The Eurozone returned to growth, with GDP expanding by 0.1% in Q1 on a quarterly basis, after Q4’s flat reading, though on an annual basis, growth slowed to 1.3% from 1.8% in Q4.

Around the world

The Bank of Japan (BoJ) kept short-term interest rate at -0.1%, as expected, and left its yield curve control policy unchanged at new Governor Kazuo Ueda’s inaugural meeting. However, Ueda unveiled a plan to review monetary policy measures taken over the past 25 years, which could lay the foundations for a potential policy change. The BoJ also scrapped its guidance on future interest rates, removing a pledge to keep rates at “current or lower levels”, and lifted its projections for core consumer inflation, to 1.8% from 1.6% for the year to March 2024, and to 2% from 1.8% for the following year.

Figure in focus: 18%

Electric vehicles (EVs) are predicted to make up almost a fifth of the global car market this year, according to a new report from the International Energy Agency (IEA). More than 10 million EVs were sold worldwide in 2022 and sales are expected to grow by another 35% this year, accounting for 18% of the global car market. China is a frontrunner in the take-up of EVs, representing 60% of global EV sales in 2022. The IEA expects EVs to account for 60% of total car sales across China, Europe and the US by 2030, helping avoid the need for up to five million barrels of oil each day.

Words of wisdom:

Brady bonds: Named after former US Treasury Secretary Nicholas Brady, these long-term debt instruments are issued by developing nations but denominated in US dollars and backed by US Treasury bonds. They were originally introduced in the late 1980s as part of Brady’s wider plan to restructure emerging market debt, notably in Latin America where Mexico was the first ever issuer. Most Brady bonds have matured or been repaid, but World Bank Chief Economist Indermit Gill last week raised the prospect of the bonds playing a role again as a means to address an evolving debt crisis in some countries.

What’s coming up

Central bank news is likely to dominate much of the week ahead; on Tuesday the Reserve Bank of Australia meets to decide on interest rates, while the Fed concludes its monetary policy meeting on Wednesday, followed by the European Central Bank on Thursday. In terms of economic updates, a flash Eurozone inflation rate is reported on Tuesday, and on Wednesday, the bloc follows with its latest unemployment data. Wednesday also sees composite Purchasing Managers’ Indices (PMIs) for Australia, the US and India published. PMIs covering the UK and Eurozone are reported on Thursday. The latest US employment numbers and China’s Caixin Composite PMI are published Friday. 

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    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.

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