Still fearful of the Fed

Weekly update
  • Weekly market update
  • 5 minute read

A good week for

  • Oil reversed course, surging +8% higher in US dollar terms.
  • Japan was the only region to gain in sterling terms, rising +0.9%

A bad week for

  • Bonds broadly fell, with gilts down -2.4%
  • Equities also weakened, with Europe down -2.6% in sterling terms

US Federal reserve

The market optimism which followed the February US central bank meeting unwound last week. US Federal Reserve chair, Jerome Powell, spoke at the Economics Club of Washington, reiterating some points made in the February Federal Reserve Open Markets Committee statement. However, these remarks had gained new significance in the wake of the strong January labour market report. Powell reiterated that the FOMC had not yet achieved a stance of policy that is sufficiently restrictive to bring inflation down to 2% over time but that financial conditions were better aligned than they were before. The negative market response, in the wake of what was interpreted as a dovish Fed meeting, likely reflects concern that the Fed may continue tightening rates further. Futures markets currently indicate rates peaking around 5.25% in the summer. However, Powell reiterated that the labour market remained “extraordinarily strong”, and that “if the data were to continue to come in stronger than we forecast and we were to conclude that we needed to raise rates more than is priced into the markets…then we would certainly… raise rates more." We anticipate that further tightening will be relatively modest but there is greater scope for turbulence later in the year, with futures markets indicating cuts to rates in the second half of 2023, whereas the Fed may be minded to leave rates steady.


Last week Saudi Arabia increased the price of the oil it sells to Asia. Saudi Arabia’s state oil company Saudi Aramco increased the price of Arab Light grade crude oil sold to Asia by USD0.20 per barrel. The rise comes in anticipation of an increase in demand, now that China has eased Covid-19 restrictions. However, Saudi Arabian oil was already more expensive than other exporters, and the rise takes the price to a USD2 premium to other Arab exporters. It has thus been interpreted as a signal that Aramco is confident on the outlook for oil demand in 2023.

UK economy

The UK avoided a recession in the fourth quarter of 2022 by the slimmest of margins, delivering 0% growth quarter-on-quarter. This was a weaker performance than analysts had expected, given the surprising strength of growth in November, when the economy grew by 0.1%. However, in December, growth fell by -0.5%. Over the quarter as a whole, consumption was stronger than had been expected, but real consumption spending rose by only 0.1%. Business investment was a bright spot, rising 4.8%, while government spending rose by 0.8%. However, residential investment was weak, falling 3.2%, and net trade detracted a further 0.8%. While the UK has avoided a recession for now, economic contraction remains likely in 2023, given the squeeze to real incomes and consumer confidence remaining weak.

UK housing

Data from the Royal Institution of Chartered Surveyors suggested that weakness in the UK real estate sector continued in January. The RICS house price balance slipped to -47% in January, it’s lowest level since the global financial crisis. This reflected weak new buyer demand, but the survey indicated sales, listings and prices were also on a downward trend. The housing market is suffering the impact of higher interest rates and the higher cost of living, both of which are impacting the affordability of mortgages. Consumer confidence is also weak, as is often the case when house prices weaken, as housing makes up a significant proportion of many households’ wealth. However, even if UK house prices fall by 10%, as some predict, they would still be above their pre-pandemic level.

UK fiscal policy

Pharmaceuticals firm AstraZeneca has cancelled plans to build a new plant in the UK. The company’s CEO has blamed this decision on the UK’s unattractive tax regime, instead opting for Ireland. The decision comes ahead of the Chancellor’s spring statement, when changes to UK fiscal policy could be announced. Fortunately, the government likely has more fiscal headroom than previously forecast, due to energy prices falling. This could cut the amount of government spending needed to fund the Energy Price Guarantee. However, the Office for Budget Responsibility is expected to revise down the UK’s long-term growth projections, making the longer term picture for repaying debt more challenging.


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The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.


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