US: Strong economic data dampens hopes of less aggressive interest rate hikes

Some surprisingly strong economic data dampened hopes that the Federal Reserve might soon be able to curb its program of raising interest rates to cool inflation. Defensive areas such as health care, consumer essentials and utilities sectors did the best during the week, whereas energy stocks fell sharply as oil prices tumbled to their lowest level since January. The financial sector also performed poorly as some banks, including Goldman Sachs and JPMorgan offered negative outlooks for the economy and their business as we head into 2023. This coming week will see inflation numbers being published and interest rate hikes.

Japan: Stronger domestic economy

While investor sentiment was most positive as a result of data showing that Japan’s economy contracted less than initially estimated in the third quarter of 2022, uncertainty about interest rates in the US prevented more pronounced gains in stock markets. In other economic reports, household spending, increased year-on-year in October, due to increased spending on trips after the lifting of coronavirus restrictions.

China: Markets welcome rapid easing of restrictions

Chinese officials announced guidelines to their new COVID prevention and control measures. The new measures include home quarantine for people with mild symptoms, a vaccination program for the elderly, and reducing mass testing requirements in many cities. Lockdowns in high-risk areas would be lifted if no new cases appeared for five consecutive days. In other data, China’s exports fell more than expected in November due to weaker global demand resulting from rising prices and interest rate rises around the world, as well as pandemic-related disruptions in China.

Europe: Economy heading to contraction

Whilst data showed that the eurozone economy expanded more than originally estimated in the third quarter of the year, forward looking data points to a contraction in economic activity. The European Central Bank meet later this week to decide by how much they will raise interest rates.

UK: Business activity in services sector falls

Business activity in the UK services sector contracted again in November as new orders fell. Data suggest that business activity remains firmly in contraction territory. According to Halifax, House prices dropped for a third consecutive month in November and at the fastest pace since the financial crash in 2008. It’s a big week in the UK too with inflation numbers out on Wednesday, Bank of England interest rate hike on Thursday and data on retail sales out on Friday.