Week ending 28th October 2022.

Hopes that central banks may be about to pivot away from their aggressive monetary tightening sent global equity markets higher this week, despite some big share price falls in the heavily-weighted technology sector after Amazon, Alphabet (the owner of Google), Meta (the owner of Facebook) and Microsoft all reported profits that disappointed the market.

In fact, the falls in these four tech companies wiped a total of $350bn from their combined market capitalisations.  To put this into perspective, this is roughly equivalent to the market capitalisation of Shell (£170bn) PLUS AstraZeneca (£156bn) – the two largest companies in the UK.

However, equity market sentiment was firstly helped by the Bank of Canada (BoC) which delivered a smaller-than-expected interest rate increase (0.5% versus 0.75%); then yesterday (Thursday 27 October 2022) the ECB, while doubling Eurozone interest rates to 1.5%, accompanied the increase with a statement implying that any additional increases in interest rates would be much smaller as the central bank was near the end of this tightening cycle.

Additionally, the central banks of Japan and Brazil both left their interest rates unchanged.

Although it may sound stupid that aggressive interest rates increases aren’t needed given the current high levels of inflation, but today’s synchronised global inflation is a result of the coronavirus lockdown supply chain disruptions, which were then exacerbated by the war in Ukraine – and not only are these pressures starting to ease, but they will soon become next year’s base effects, which means we should soon start to see a synchronised global slowing in inflation.

This, coupled with this week’s PMI data (which reinforces our view that the global economy is slowing), hopefully means that the Fed will follow suit when policymakers meet on Wednesday (2 November 2022).

Looking ahead to this coming week, the main event will be the Fed monetary policy meeting.

In addition, the BoE policymakers are meeting on Thursday (3 November 2022) and given Rishi Sunak’s focus on fiscal discipline (which will result in slower UK economic growth), this should hopefully mean the BoE may not follow through on its expected 0.75% interest rate increase.

Data wise, we have US & UK mortgage data; US ISM; US & Eurozone employment data; Eurozone CPI; Chinese PMI; Japanese industrial production; and Japanese retail sales.

Investment Management Team