Week ending 10th February 2023.

In addition to Tuesday’s (7 February 2023) comments from the Fed Chair, Jay Powell, (please see here) we had a number of other Fed policymakers making speeches this week – and all effectively reiterated Jay Powell’s balanced speech: although CPI inflation readings in the coming months will be disinflationary as peak inflation is behind us, the path back to their target 2% level may not be a smooth one.  As such, higher US interest rates may be needed, and needed to stay high for longer than initially thought.

While frustrating, it isn’t hard to see why they want to sound hawkish: despite clear signs that both global inflation and the global economy is slowing, policymakers don’t want to repeat history by claiming victory too early – especially given how tight global labour markets currently are.

Consequently, in the short-term, the interest rate path appears to be very data-dependent, which makes next week’s US CPI inflation reading extremely important.

Elsewhere, having contracted by 0.2% in Q3, the UK economy technically avoided a recession by flat-lining in Q4 (the technical definition of a recession is back-to-back quarterly GDP contractions).  While positive, we wouldn’t be surprised if the UK does have a shallow recession this year, given our reduced consumer spending thanks to the cost of living crisis, coupled with the negative economic impact from the ongoing industrial action.

In addition to US CPI on Tuesday (14 February 2023), this coming week we have UK CPI inflation; US & UK retail sales; US & Eurozone industrial production; UK employment; Eurozone & Japanese Q4 GDP; and US housing data.

Investment Management Team

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