Market Updates

BlackRock sees that there are hopes of a soft economic landing, plummeting inflation and interest rate cuts since markets have leapt ahead this year, driven by China’s reopening, falling energy prices and slowing inflation.

Last week was choppy as investors digested central-banker commentary, macro data and corporate earnings. Of note, a number of Federal Reserve speakers stuck to their hawkish narrative and some weak US macro data raised doubts over a “soft landing” for the US economy.

BlackRock sees the backdrop for EM assets turning more positive as EM rates peak, DM central banks pause, the U.S. dollar weakens and China reopens.

The new market consensus for Federal Reserve (Fed) rate hikes is for 50 basis points (bps) to be added in the first half of 2023, followed by 200 bps of cuts over the following 18 months. It remains to be seen whether the market will eventually give in and follow the hawkish central bank tones, or whether the central banks will pivot to a more dovish stance than they have adopted until now.

BlackRock sees three shifts shaping 2023. DM economies facing recession, DM central banks will halt rate hikes when economic damage is clearer, and China’s reopening and domestic spending will drive global growth as DM recessions hit.

2022 was a crazy year for global financial markets amidst escalating geopolitical risk, record levels of inflation and the highest central bank hiking cycle ever witnessed. Inflation data rose to 40-year highs and, globally, the central banks of the top ten most-traded currencies delivered 2,700 basis points worth of tightening to fight it.

Unsurprisingly, it looks like an extremely quiet week ahead. No meaningful corporate events are scheduled this week and the macro calendar is also light, with the Eurozone Consumer Confidence reading on Tuesday and UK GDP Thursday the highlights

War, soaring inflation and a perfect market storm that happened in 2022 shaped BlackRock’s three investment lessons for the new year.

BlackRock are expecting central banks to keep rates high as recession unfolds – not save the day as in the past. Getting inflation down means they need to crush demand, making recession foretold.

The week ahead has the potential to set the tone for markets into year-end and into the first quarter of 2023. Central bank meetings throughout the week include the Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BoE) and Swiss National Bank (SMB). In addition, key inflation data comes out in several countries, including the United States.