Markets brush off Powell’s warnings of unpopular measures to restore price stability

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities finished higher in a choppy trading session on Tuesday. Concerns over higher interest rates in the future received added attention as investors look to inflation data to be released tomorrow. The Dow Jones Industrial Average rose by 0.6% to 33,704, the S&P 500 Index gained 0.7% to 3,919, and the Nasdaq Composite increased by 1.0% to 10,743.  

Summary as at 11.01.2023 

• Asian equity markets rose on Wednesday, tracking gains on Wall Street as China’s reopening from Covid also continued to aid market sentiment. Shares in Australia, Japan, Hong Kong, and China all advanced. 
• European shares are on course to follow Asian peers’ higher while US equity futures were little changed in the early hours of the morning. 
• Oil prices traded lower on Wednesday, snapping a four-day advance after data from the American Petroleum Institute showed that US crude inventories jumped by a hefty 14.9 million barrels last week, defying expectations for a 2.4 million barrel drop. 
• The World Bank slashed its global growth forecasts from projections it made in mid-2022 on the back of what it sees as broadly worsening economic conditions. The Bank downgraded almost all of its forecasts for advanced economies in the world, cutting its growth outlook for the global economy to 1.7% for 2023 from an earlier projection of 3%. 
• The monthly Consumer Price Index indicator in Australia increased by 7.3% in the year to November 2022, accelerating from a 6.9% rise in October while resuming to a record-high figure which was previously hit in September. The monthly CPI indicator excluding volatile items of food and energy, rose to 6.7% in November from 6.4% in October. 
• In a speech delivered to Sweden’s Riksbank, Federal Reserve Chairman Jerome Powell emphasized the need for the cental bank to be free of political influence while noting that climate change should not be a priority for monetary policymakers. 
• The National Federation of Independent Business Small Optimism Index for December declined to 89.8, versus November’s 91.9 level. The index posted the twelfth-consecutive month below the 48-year average of 98.0. According to the report, 32% of small business owners noted that inflation was their single most important problem in operating their business. 
• Emmanuel Macron announced yesterday plans to gradually raise France’s minimum retirement age to 64 by 2030. This sparked anger among labour unions who immediately called for strikes to protest the change. Labour organisations say it will unfairly penalise the low-skilled and least wealthy who began working early in life.