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Investment Institute
Weekly Market Update

Take Two: US GDP and consumer confidence show strength, biodiversity targets agreed

  • 26 December 2022 (3 min read)

What do you need to know?

Third quarter (Q3) economic growth in the US was stronger than first estimated, beating expectations and confirming a strong rebound from Q2’s contraction. That prompted a softening in US equities as markets weighed the prospect of more aggressive rate hikes from the Federal Reserve. In the three months to end-September GDP was up an annualised 3.2% against an initial projection of 2.9%, revised upwards on the back of improved consumer spending and fixed investment. Data earlier in the week showed consumer confidence in the US had risen to an eight-month high in December reflecting more upbeat assessments of the labour market as well the lowest 12-month consumer inflation expectations for more than a year.

Around the world

The World Bank cut its forecast for Chinese GDP growth to 2.7% this year, from 2.8% projected in September, before recovering to 4.3% in 2023 – lower than the 4.5% growth earlier forecast. The revision reflects uncertainty over China’s abrupt shift in its COVID-19 policy and a surge of infections across the country. The World Bank said continued adaption of public health measures will be key to minimising economic disruption, alongside ongoing macroeconomic policy support. Hopes for China’s re-opening, a bigger-than-expected fall in US crude stockpiles and the onset of US winter storms helped boost oil prices, with Brent Crude above $82 and up by more than $3 a barrel over the week as of Friday morning.

Figure in focus: 30%

195 countries have agreed to protect and restore at least 30% of the world’s land and seas by 2030 in a landmark deal announced last week at the end of the COP15 biodiversity conference. The agreement will also encourage countries to channel $200bn each year to biodiversity initiatives – from both private and public financing – with developed countries to provide $25bn annually starting in 2025, and $30bn by 2030. While quantifiable targets have been set to help measure and track progress, the agreement’s success could hinge on how quickly resources can be mobilised and how governments will be held accountable for their progress.

Words of wisdom:

Yield curve control:  An alternative to quantitative easing for creating economic stimulus and managing inflation. The approach involves targeting a yield for government debt and buying bonds to stay within the stated range. Its most prominent use has been in Japan where the central bank last week surprised markets by doubling the yield band for 10-year bonds to 50 basis points either side of the 0% target, while increasing the monthly amount of bonds it could purchase to ¥9trn from ¥7.3trn. The move was seen as a first step towards policy normalisation, which may be encouraged by November’s fresh 40-year high for core consumer price inflation.

What’s coming up

On Tuesday the US reports the latest house price data while Japan publishes its November unemployment rate. On Wednesday, the Bank of Japan publishes its Summary of Opinions, looking at prospects for inflation and economic growth following its latest interest rate decision. The UK reports mortgage approvals data – an indicator of future borrowing – on Thursday, while Spain publishes its inflation rate for December on Friday.

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