It's been a marginally positive week across equity markets. Read on to see how the last week has unfolded...
Eurozone inflation surprises to the downside: have we passed the peak?
Eurozone inflation fell from an all-time high of 10.6% to 10.0% year-on-year in November, the first decrease for 17 months. Whilst the fall was 0.4% larger than analysts had predicted, inflation may not yet have peaked, as a large driver behind the decrease was a one-off discount to energy bills in the Netherlands that caused the annual increase in energy costs to fall from 99.7% to 41.6%.
Core inflation, which strips out energy prices and is generally viewed as having ‘sticky’ price increases, remained at its all-time high of a 5.0% year-on-year increase. Having raised rates by 0.75% at the past two meetings, many economists now predict that the European Central Bank will opt for a 0.50% rise at their next meeting on 15 December.
US economy defies rate hikes
The US economy remains robust, despite the Federal Reserve’s (Fed’s) aggressive interest rate rises. November’s economic data release revealed stronger-than-expected growth in both employment and the services sector.
Non-farm payrolls rose by 263,000 vs a forecast of 200,000 but less than the 284,000 added in October. However, unemployment remains stubbornly low at 3.7%, leading to speculation that the Fed is unlikely to relax their rate hiking programme any time soon.
At the same time, inflationary pressures remain, particularly in the services sector, where there are signs of increasing domestic demand and few indications that cost-push inflation is easing. Fed Chair, Jerome Powell, has indicated that policymakers are particularly concerned with inflationary pressures in ‘core services’ outside of housing, thus adding to a mixed picture regarding interest rate expectations.
Market review
It was a marginally positive week across most equity markets, with the MSCI All Country World index ending the week up over 1%. The largest gains were seen in China, where the MSCI China ended up almost 9%, after increased speculation that the zero-Covid policies may be eased in the face of growing discontent.
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