Global markets are gearing up for a major week of economic data and central bank speeches which have the potential to rock equity markets after the strong start to 2023.
Federal Reserve Chair Jerome Powell will deliver a two-day testimony to Congress this week and will be pressed on the scale of future rate hikes. Then on Friday, markets will receive the latest jobs numbers from the United States.
Equity markets have rallied sharply from the October low on hopes the Fed will pivot to slower rate hikes and eventually rate cuts. The timing of this pivot is crucial to sustaining the current rally.
If the Fed Chair suggests equity traders have prematurely priced in this pivot, one would expect equity volatility to increase. Friday’s jobs number will provide insight into the health of the US economy and will feature heavily in the Fed’s thinking around the next rate decision.
A strong US jobs number reduces the chance of slower rate hikes and increases the chance of disgruntled equity investors.
With this near-term risk on the horizon, the FTSE 100 fell 0.6% to 7,899 in early trade on Monday. US equity futures were pointing to a lower open.
China GDP
The FTSE 100 underperformed Europe as miners dragged the index after China said they were targeting 5% GDP growth.
Miners were among the worst fallers with Anglo American taking 4.2% and Rio Tinto giving up 3.6% of their value.
“Mining stocks helped hold the FTSE 100 back at the start of the week – reflecting disappointment around China flagging a lower-than-expected 5% target for economic growth, and, with its customary lack of transparency, giving no details on how exactly it is going to get there,” said AJ Bell investment director Russ Mould.
Although a 5% growth rate is less than markets are accustomed to, the context of this growth forecasts and lengthy COVID restrictions are put into perspective by RBC Wealth Management as they highlight an increase in underlying economic activity.
“A flurry of activity, to the surprise of many, has returned in China. Public transit ridership and airline travel are increasing, coinciding with lower COVID-19 cases. As the momentum continues, we think benefits for the global economy and select equities will emerge,” said Jasmine Duan, Investment Strategist at RBC Wealth Management.