The markets’ attention focused on the last meeting of the year of the main central banks, not so much because of the rate hikes already discounted, but rather because of the vision of these banks on inflation during 2023 and the corresponding rate decisions. interest This is so because it can translate into a recession.
Investors have corrected their expectations and are now not confident that the recent signs of slowing inflationary pressures are necessary for the major central banks, led by the Fed, to change their hawkish rhetoric. In fact, the central banks transmit that they will continue to raise interest rates above the estimate in recent months and these will remain at maximum levels, at least, during 2023.
Additionally, they emphasized that in order to control inflation, a cooling down of the economy is necessary, which will generate a weakening of the labor market. That increases the risk of a recession, although there is hope that it will be level. The markets reacted negatively; stock markets and assets with downside risk. Lagarde’s statement that rates will be restrictive enough to control inflation boosted the appreciation of the euro and shifted the rate curve upwards.
FED: As expected, interest rates rose 50 basis points; Powell has ruled out rate cuts in 2023 and voiced his concerns about controlling the underlying explosion in services. The economic forecasts reflect less growth, an increase in the unemployment rate and a path of inflation higher than that estimated in September.
ECB: It also complied with the increase of 50 points to leave the reference rates at 2.5%. However, Lagarde’s more “hawkish” tone concerned about inflation surprised. Thus, a greater increase in interest rates is estimated and that they remain at maximums for a longer time. Additionally, the ECB will reduce its balance by 15,000 million euros as of March. The growth forecasts are revised downwards and the inflation forecasts upwards.
China: Covid infections increase and industrial production and retail sales data are well below expectations.
Conclusion: It does not seem that China can escape exponential increases in cases and deaths from covid, this should lead to very low growth in 2023 for an economy that accounts for 20% of world GDP and explains 50% of the demand for raw materials. Therefore, we will have more cheap energy than the central banks expect, I am sure… we will keep reporting.