Market Report : 29.11.22

Published: 29/11/2022 By ECAP

Sterling, as well as other high-beta currencies, were under pressure yesterday as protests against COVID-19 restrictions in China knocked market sentiment. Moreover, fears of a lengthy U.K. recession added further downside pressure on market participants. For now, investors await to see what the Bank of England's next move will be. There will be several BoE members due to speak this week, including BoE governor Andrew Bailey today and chief economist Huw Pill tomorrow. The Bank of England has been trying to combat soaring inflation without damaging the economy too much in the process, however, inflation pressures seem likely to remain elevated during 2023, which would force the Bank of England to deliver further hikes.

European stock markets opened relatively flat this morning, as investors monitor China’s ongoing COVID outbreak as well as the latest Spanish and German inflation numbers. In fact, European investors will focus on inflation, with German and Spanish consumer prices scheduled for later in the session, ahead of tomorrow’s preliminary reading of Eurozone inflation for November. Inflation in the Eurozone is expected to come in at 10.4% in November, a small drop from October’s 10.6%. However, this is unlikely to stop the European Central Bank from continuing its rate hikes given this would still be more than five times its 2% target. Ultimately, ECB President Christine Lagarde said the region’s inflation has not peaked and it risks turning out even higher than currently expected, hinting at more interest rate hikes ahead.

The dollar clawed back intra-day losses yesterday as a hawkish Federal Reserve official laid out the case for further rate hikes, while other G10 currencies wobbled on concerns about unrest over COVID-19 restrictions in China. The greenback rebounded in early U.S. trading and added to gains after St. Louis Fed President James Bullard said the U.S. central bank needs to raise interest rates further and then hold them there throughout next year and into 2024 to gain control of inflation and bring it back toward the Fed's 2% goal. Furthermore, comments from Fed Chair Jerome Powell tomorrow will be closely watched for any new signals on further tightening with key U.S. jobs data for November also due on Friday. Ultimately, the U.S. central bank is expected to hike rates by an additional 50-basis points when it meets on the 13th/14th of December.