Investment Institute
Weekly Market Update

Take Two: Fed and ECB signal more rate hikes to come, new energy breakthrough announced

  • 19 December 2022 (3 min read)

What do you need to know?

The US Federal Reserve raised interest rates by 50 basis points (bp), as expected, and by unanimous decision. The Fed Funds rate is now at between 4.25% and 4.50% – its highest in 15 years – while the projection for end-2023 also moved higher, to between 5% and 5.25%. Markets softened on the hawkish tone, and on a gloomy outlook for 2023 after the Fed cut its GDP growth forecast for the year to 0.5% from 1.2%. Inflation forecasts were nudged higher – to the point that the central bank now sees 2025 inflation still marginally above its 2% target. Chair Jerome Powell stressed the stickiness of price rises and warned markets may be mispricing the Fed outlook.

Around the world

The European Central Bank (ECB) met market expectations as it raised rates by 50bp to 2%. It said it would reduce its balance sheet by an average €15bn per month from March 2023 until the end of the second quarter (Q2), before reviewing the pace for further reduction. ECB President Christine Lagarde was considerably more hawkish than generally anticipated, saying inflation conditions remained difficult and stressing there was no monetary policy pivot in sight, with 50bp rises to be expected for a “considerable amount of time”. Meanwhile, the Bank of England delivered a ninth consecutive hike as it tackles its own inflation issues, highlighting the possibility of “further increases” as it raised its benchmark interest rate to 3.5% from 3%.

Figure in focus: 3.15 megajoules

Scientists from the US National Ignition Facility achieved fusion ignition, producing 3.15 megajoules (MJ) of energy from a nuclear fusion reaction which, for the first time, was more energy than consumed. The experiment replicates the process that powers the sun, using lasers to fire 2.05MJ of energy at pellets containing hydrogen fuel. However, there is still a long way to go before fusion energy can contribute to power grids – notably, the experiment was not optimised for efficiency and drew significant power for its lasers. Nevertheless, this breakthrough may stand as an important step towards unlocking a potentially unlimited, carbon-free energy source.

Words of wisdom

Central Economic Work Conference: A meeting held annually in December where senior Chinese officials discuss economic policy for the year ahead as well as targets for economic growth and inflation. Despite suggestions it would be postponed, the conference began on Thursday and marked the first major economic meeting for the Chinese Communist Party’s new leadership under a reappointed Xi Jinping. China’s economic outlook has been clouded by strict COVID-19 policies amid a surge of cases across the country, but official news sources said the government would prioritise new plans to drive growth after a recently announced loosening of lockdown restrictions.

What’s coming up

Monday sees Germany’s closely followed Ifo Business Climate indictor published. On Tuesday the Bank of Japan meets to decide on monetary policy while the Reserve Bank of Australia publishes the minutes of its latest policy meeting. The Reserve Bank of India follows up with its own minutes on Wednesday when Canada also reports updated inflation data. Final estimates for Q3 growth in the UK and US arrive on Thursday. Japan’s latest inflation numbers land on Friday.

Related Articles

Weekly Market Update

Take Two: US Q4 GDP tops expectations; UN predicts slower global growth in 2023

  • by AXA IM Investment Institute
  • 30 January 2023 (3 min read)
Weekly Market Update

Take Two: China growth slows and population falls; global bond issuance soars

  • by AXA Investment Managers
  • 23 January 2023 (3 min read)
Weekly Market Update

Take Two: US inflation eases, prompting hopes of smaller rate hikes; World Bank cuts growth forecast

  • by AXA Investment Managers
  • 16 January 2023 (3 min read)

    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.

    Are you a Professional Investor ?

    This website is available in English only and directed at professional, institutional or qualified investors. It is not suitable for retail investors. As such, some of the funds, products and services described on this website are not available for retail investors under the MiFID II (Directive 2014/65/UE). By pressing accept you confirm that you are a professional investor and agree to AXA Investment Managers' Legal Information and Terms of Use.