The Federal Reserve’s recent decision to slow rates may have been justified by the slight uptick in US futures on Friday. The upcoming Core PCE Price Index is likely to reveal that a key inflation index fell in November. In the UK, the blue-chip index dropped 0.4% to 7,469 points at the close, as signs of sluggish UK GDP growth suggested a recession.
Oil firms led premarket gains as contracts on the Nasdaq 100, and S&P 500 indices recovered losses to trade higher overall. After billionaire Elon Musk announced he would cease selling Tesla Inc. shares, the electric car manufacturer’s stock increased.
On course for its first weekly rise in three weeks, the Stoxx 600 index of Europe increased.
S&P 500 2day
Due to some strong US data on Thursday, the US dollar appreciated. Investors liked that even though unemployment claims increased to 216,000 from 214,000 and were below the consensus estimate of 222,000.
Additionally, the third quarter’s GDP increased from the initial estimate of 2.9% to 3.2%.
The solid data adds to the case for the Federal Reserve continuing its hawkish tightening strategy, which has increased the prospect of higher rates for a longer period of time.
As a result, technology equities are on track to have their worst December since the dot-com bubble burst twenty years ago.
According to Bank of America Corp., equity funds experienced withdrawals of roughly $42 billion in the week ending Dec. 21 the greatest amount ever as the Fed, the European Central Bank, and the Bank of Japan all hinted at further rate hikes in the coming year.
The PCE deflator, a crucial inflation indicator tracked by the Fed, is now anticipated by investors, who anticipate a headline print of 5.5% annually, down from 6% in October.
Treasury yields increased a little bit, adding to Thursday’s changes. The benchmark 10-year yield in Japan decreased to 0.37%, still well below the central bank’s new 0.5% upper ceiling despite statistics indicating inflation accelerated to its highest level since 1981.
After increasing for the previous two weeks, the dollar retreated versus a basket of currencies and was on track to experience a weekly fall.
Thanks to the Bank of Japan’s unexpected policy shift toward hawkishness revealed on Tuesday, the yen strengthened, pushing this week’s gains to roughly 3%.
The price cap imposed by the Group of Seven on its exports caused Russia to say it may reduce crude production, raising concerns about world supply in the coming year.
This news caused oil prices to rise significantly for the week.
UK Economy Shrank
According to updated statistics, the UK economy fell more than initially estimated in the three months leading up to September. According to the Office for National Statistics (ONS), corporate investment fared worse than anticipated, causing the GDP to decrease by 0.3% as opposed to the 0.2% previously estimated.
Additionally, growth estimates for the first half of 2022 have been reduced. As rising costs hamper growth, the UK is predicted to enter a recession in the latter three months of the year.
When a nation’s economy contracts for two consecutive quarters of three months, that nation is said to be in a recession.
Typically, as business profits decline, wages decline, and unemployment grows, the government has less tax revenue to spend on public services.
“Our revised estimates suggest the economy did slightly less well over the last year than we originally predicted,” according to Darren Morgan, director of economic statistics at the ONS, with manufacturing “particularly worse.”
Household spending “dropped for the first time since the final Covid-19 lockdown in the spring of 2021,” he stated, and household earnings continued to decline when rising prices were taken into consideration.
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Upcoming Economic Data
The week comes to an end in the US with a plethora of events. The PCE Core Index, the Fed’s favored interest indicator, will be a focus of the markets. The indicator is anticipated to decrease from 5.0% a month earlier to 4.6% y/y in November.
Personal income and spending are also anticipated to decline. Durable goods, UoM consumer confidence, and UoM inflation forecasts are also released in the US.
In Canada, the announcement of GDP for October is anticipated to show a meager 0.1% m/m increase.
This would not change from the GDP in September. Due to the fact that pay growth has lagged behind inflation, Canadian consumers have been conserving more of their hard-earned money. Consumer spending has decreased, which has hampered economic growth.
Additionally, there are troubling indications that economic growth slowed down in the fourth quarter.
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