Investment Institute
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:

Biodiversity Beyond National Jurisdiction Treaty: Also known as the High Seas Treaty, this new agreement between United Nations (UN) member states seeks to protect large parts of global oceans, safeguard marine life and reverse biodiversity loss. Some two-thirds of the world’s oceans are designated ‘high seas’ or international waters, meaning they currently fall outside of national legislation, and their ecosystems are under increasing stress. The treaty, which still needs to be ratified, will likely place limits on fishing activities, shipping routes and commercial activities like deep sea mining. The deal has taken more than a decade to negotiate, as there were sticking points around issues like fishing rights and funding.

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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