Investment Institute
Weekly Market Update

Take Two: Fed stays cautious; Eurozone business activity falls

  • 27 November 2023 (3 min read)

What do you need to know?

US Federal Reserve (Fed) officials will only raise interest rates further if progress towards controlling inflation stalls, minutes from the latest policy meeting showed. This marks a change from its September meeting when a majority felt that one more hike was needed. During October inflation was flat on the month but up 3.2% from a year ago. The Fed has kept rates between 5.25% and 5.50% since July, and “all participants judged it appropriate to maintain” this rate at the latest gathering. Elsewhere, European Central Bank President Christine Lagarde said the bank would “allow some time” for high interest rates to tame inflation after policymakers left rates at 4.0% in October.

Around the world

Eurozone business activity continued to fall in November for the sixth consecutive month, though the rate of contraction has slowed. A composite Purchasing Managers’ Index (PMI) flash estimate increased to 47.1 in November from 46.5 in October – a reading below 50 indicates contraction – as inventories were scaled back and companies lowered their staffing levels. Elsewhere, a flash estimate showed UK economic activity expanded in November to 50.1 from 48.7 in October, the highest in four months, due to an improvement in services. Japan’s composite PMI showed activity stagnated in November with a reading of 50.0 – ending 10 consecutive months of expansion.

Figure in focus: 2.9°C

The planet is heading for temperature rises of up to 2.9°C above pre-industrial levels, even if countries adhere to their Paris Agreement climate pledges, the United Nations (UN) Environment Programme has warned. Its 2023 Emissions Gap Report puts global chances of keeping within the 1.5°C threshold at just 14% and forecast 2030 emissions must fall by 28% to 42% for the pathway to 2°C and 1.5°C respectively. It called for all countries to accelerate their low-carbon transformations and for developed countries to support the emerging nations. This year saw the hottest September on record, with average temperatures 1.8°C above pre-industrial levels. 

Words of wisdom

Central Economic Work Conference: An annual meeting where China’s leaders will discuss the outlook and policy plans for the world’s second-largest economy for the coming year. Chinese government advisors are expected to recommend increasing fiscal stimulus at the meeting this December, setting economic growth targets ranging from 4.5% to 5.5% in 2024, according to reports. This follows a plan to issue one trillion yuan ($139 billion) in sovereign bonds before the end of 2023, raising this year’s budget deficit target to 3.8% of GDP from an initial 3%. Outcomes of the conference will not be announced until China’s annual parliament meeting, likely to be held in March 2024.

What’s coming up?

On Tuesday, the US reports on house prices and follows up on Wednesday with a second estimate of third quarter (Q3) GDP growth. On the same day a spate of Eurozone surveys, including the latest Economic, Industrial and Services Sentiment indicators, are issued. On Thursday, the bloc issues flash inflation data and its latest unemployment numbers while Canada publishes Q3 GDP growth figures. Thursday also sees COP28, the 2023 UN Climate Change Conference, commence. On Friday, China posts its Caixin manufacturing PMI numbers for November.

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