Weekly Macro Matters
Macro Matters – Weekly review, w/c September 18
The ECB raised rates to record highs but hinted at pausing further hikes, while U.S. inflation data exceeded expectations, challenging the Fed’s plans to slow rate increases. Mixed signals from the U.S. labor market and China’s economic stabilization added complexity to global market dynamics.
Macro Matters – Weekly Review, w/c September 18
Macroeconomic / Geopolitical Developments
• European Central Bank (ECB) Raises Interest Rates in Dovish Hike
• U.S. Inflation Higher than Expected
• Softening U.S. Labour Market
• Fed Desire to Downshift Meets Challenges from Incoming Data
• Tech Impacted by Apple and Arm IPO
• China Data Mixed but Showing Positives
• What to Watch This Week
ECB Raises Interest Rates in Dovish Hike
On September 14, the ECB increased its key rates by 25 basis points, pushing the refinancing rate to 4.50%. This marks a record high after 10 consecutive hikes since June 2022. The ECB signaled a potential pause in its tightening cycle, stating that current rates should sufficiently control inflation if maintained. Following the announcement, the euro hit a six-month low against the U.S. dollar, while European stocks rallied.
U.S. Inflation Higher Than Expected
August inflation saw its largest monthly increase of 2023, driven by a 5.6% surge in energy prices, including a 10.6% rise in gasoline costs. The CPI rose 0.6% month-on-month and 3.7% year-on-year, slightly exceeding forecasts. Core inflation showed slower growth, offering some relief to the Federal Reserve, but rising energy prices remain a concern for policymakers.
Softening U.S. Labour Market
The U.S. labor market showed signs of gradual cooling. Key indicators like job openings and the quits rate declined, while wage growth and job creation slowed. A softer labor market could ease inflation pressures, allowing the Fed to maintain or lower interest rates in the future. However, any significant weakening may dampen consumer spending.
Fed Desire to Downshift Meets Challenges from Incoming Data
Despite higher-than-expected inflation, the Federal Reserve is expected to hold rates steady at its upcoming meeting. Bond markets show a low probability of rate hikes in the near term but leave room for potential increases later in the year if inflationary pressures persist. Markets currently anticipate rate cuts in 2024, though the timing and extent remain uncertain.
Tech Impacted by Apple and Arm IPO
Apple’s iPhone 15 launch and mixed reviews for its product lineup weighed on the technology sector. Meanwhile, the successful IPO of U.K. chip designer Arm provided a boost, with its Nasdaq debut drawing significant investor enthusiasm. These events highlighted the tech sector’s volatility amid broader market shifts.
China Data Mixed but Showing Positives
China’s economic data for August revealed growth in industrial production and retail sales, alongside a surprising drop in the unemployment rate. However, fixed asset investment underperformed due to weak real estate investment. An increase in new bank loans suggested improving credit demand, pointing to stabilization in China’s economy.
What to Watch This Week
Central Bank Watch:
• Federal Reserve interest rate decision and economic projections (Wednesday).
• Swiss National Bank and Bank of England rate decisions (Thursday).
• Bank of Japan monetary policy statement (Friday).
Key Macro Data:
• EU, Canadian, and U.K. CPI reports (Tuesday and Wednesday).
• Global S&P Global Flash PMI (Friday).
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