Weekly Market Recap
US inflation jumped to its highest levels since the 90s fueling expectations for a sooner rate hike. In Australia, job market still facing headwinds as a result of recent lockdowns in some regions, losing jobs for the third consecutive while unemployment rate rises. Meanwhile, the UK economic growth eases in the third quarter amid stagflation fears.
US Inflation Soars to 6.2%
The US Dollar Index reached a new high breaching 95 levels for the first time since July 2020 as recent data showed accelerating inflation pressures. The annual consumer price index (CPI) rose to 6.2% in October, marking the highest inflation level since November 1990. The recent inflation figures exceeded market expectations of only 5.8% rise. Prices of energy, shelter, food, used cars and trucks, and new vehicles among the larger contributors to the inflation surge, official data showed.
Core inflation, that excludes food and energy fluctuate prices, surged to 4.6% from 4% in September, and well above market forecasts of 4.3%
On a monthly basis, the headline inflation accelerated to 0.9% from 0.4% in the previous month and the core index rose by 0.6%. Both reading were above median expectations of 0.6% and 0.4% respectively.
Elevated inflationary pressures have pushed market expectations of the first US rate hike from 2023 into mid-2022.
The Federal Reserve announced last week it will begin tapering the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities from the current $120 billion a month, starting later this month.
The Committee noted that inflation is elevated and supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Still, the fed expects price pressures to be transitory despite the board acknowledgment that inflationary pressures are persistent, but seems they are not persistent enough to drop off the “transitory” word yet.
Fed Chairman, Jerome Powell, stated in the press conference that the bank can be patient on rate hikes but will not hesitate to act if inflation remains elevated.
Australian Job Market Disappoints for the 3rd Month
The Australian economy unexpectedly lost 46.3 thousand jobs in October to 12.83 million, missing market expectations of creating 50 thousand. The job market failed to recover from recent lockdowns and despite the accelerating vaccination rates in the country. Recent data from Australian Bureau of Statistics showed full-time employment fell 40,400 to 8.94 million, and part-time employment declined 5,900 to 3.89 million people. Meanwhile, participation rate rose to 64.7%.
The unemployment rate moved higher to 5.2% in October, from 4.6% and well above market forecasts of 4.8%.
The Reserve Bank of Australia discontinued the 0.1% yield target on April 2024 government bond during its November meeting. The board also dismissed its prior statement that rates were unlikely to rise until 2024. These actions reflected the bank’s shift to a hawkish stance, fueling expectations for a sooner rate hike.
The central bank kept the cash rate on hold at a record low of 0.1% for the 12th month in a row, and maintained buying government bonds at its current weekly pace of A$4 billion until at least mid-February 2022. The RBA noted the decision to terminate the yield target reflects the economic improvement and the earlier-than-expected progress over the inflation target.
UK Economic Growth Slows to 1.3%
The British economy is estimated to have grown by a slower pace in the third quarter. Prelim estimates showed national GDP growth increased to 1.3% between July and September, lower than 5.5% in Q2 and below market forecasts of 1.5%.
The UK quarterly growth is now 2.1% below its pre-pandemic levels in Q4 2019, official data showed.
The Bank of England held interest rates steady at its historic low of 0.1% and kept its bond-buying programme unchanged at £875 billion. The central bank signaled it will raise interest rates in the coming months responding to high inflation. Market participants were already pricing in a rate hike before the end of the year, now it’s almost certain that the bank will raise interest rates during its next meeting in December.
The BoE’s committee stated that “it will be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target.” while judging that “there are two-sided risks around developments in the economy in the medium term, and will reach its assessment on the balance of these risks in light of the relevant data as they emerge.”
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