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Weekly Market Preview
Friday, Nov 17, 2023
The recent reports on inflation levels for October in the US, UK, and the Eurozone were well-received by the markets. These reports indicated a decrease in inflation rates headlines, primarily attributed to the drop in energy prices over the past month, significantly impacting the producer price index. Additionally, the effects of tight monetary policy were observed through a decline in economic activity, particularly in the labour market. The UK inflation rates hit a two-year low at 4.6%, while US inflation data came in lower than expected at 3.2%. Consequently, the markets are increasingly convinced that central banks, including the Federal Reserve, have likely reached the peak of the interest rate hike cycle and are unlikely to hike rates further this year.
Looking ahead, investors will closely monitor preliminary data on US gross domestic product (GDP) for the fourth quarter of the current year. Expectations are for a notable decline in growth levels compared to the third quarter’s 4.9% growth. This decline is attributed to a contraction in consumer spending, as revealed by October’s US retail sales data, which saw a -0.1% contraction. Further decline is anticipated, influenced by the resumption of obligations to pay university loan instalments and the depletion of some individuals’ savings due to increased borrowing levels. This scenario may prompt some individuals to refrain from loan repayments.
With decreasing inflation levels approaching their target and a potential downturn in consumer spending impacting GDP growth, market sentiment suggests that central banks could initiate interest rate cuts in the latter half of 2024.
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