The Fed raises interest rates in the USA:

The Federal Open Market Committee increased the overnight borrowing rate by 50 basis points (after 75 basis points increases in each of the previous 4 meetings) to a targeted range between 4.25% to 4.5%, indicating that they were ready to take things slower in their fight against inflation. However, Jerome Powell, the Chairman of the Federal Reserve, clearly pointed out that the fight wasn’t over yet, with inflation still being at 7.1% year-on-year, the highest level it has been since the early 1980s. Additionally, the Committee also indicated that interest rates weren’t coming down next year, with the terminal rate (the rate at which they expect to stop increasing interest rates) of 5.1% to be hit sometime in 2023 before they hit pause.^1,2

What does this mean for investors?

Stocks will continue to get cheaper in 2023. As the Fed continues to fight inflation by increasing interest rates, consumers will tend to prioritise essential goods and services. This will in turn affect the revenues and profit margins of companies, putting pressure on their stock prices. Do those lower prices means a particular stock is good value for your money? That is the homework that we as investors must do and be ready for whenever an opportunity knocks on our door.

Across the pond:

The Bank of England raised its main interest by 50 basis points as well (after a 75 basis point increase in November), taking its bank rate to 3.5%. However, given that inflation was recorded at 10.7%, well above their 2% target, expect more interest rate hikes.³

Similarly, the European Central Bank increased its key rate by 50 basis points to 2%, in line with expectation, given the data which shows inflation rate at 10% annually.4

Meanwhile in Asia:

Analysts at JP Morgan expects the MSCI ASEAN Index⁵ to potentially go down even lower than this year’s low-point. The index measures large and mid-cap stocks across Singapore, Indonesia, Malaysia, Philippines, Thailand and Vietnam. The analysts wrote that they expect Southeast Asian markets to do a “bungee jump”, i.e. a “sharp fall followed by a rapid increase in altitude (bear market rally) followed by another decline until eventually markets come to rest at rock-bottom”.

Essentially, all eyes on China as it navigates its way through COVID-related restrictions. Although Mainland China has now allowed travel domestically, international travel would contribute to countries such as Singapore and Thailand.⁶

Keep an eye out on:

Copper Prices: Traditionally seen as a leading indicator of economic health, you would expect copper prices to fall in sync with global economy in 2023. However, some analysts are expecting otherwise, given a combination of short-term supply tightness and demand increasing due to copper being a key element in the world’s transition to clean energy. 3-month copper futures hovered around $8500/t.⁷

Fusion Power: Although researchers in California reported generating more energy through nuclear fusion than was used to conduct the experiment, fusion power will not be contributing energy to a power grid for at least a decade. It needs billions of dollars in funding and more technological breakthroughs.⁸

On that note…

And that’s a wrap. See you in the new year!

Sources:

1. https://www.cnbc.com/2022/12/14/fed-rate-decision-december-2022.html?__source=iosappshare%7Cnotion.id.NotionShareExtension
2. https://www.cnbc.com/2022/12/14/live-updates-fed-rate-hike-december.html?__source=iosappshare%7Cnotion.id.NotionShareExtension
3. https://www.cnbc.com/2022/12/15/bank-of-england-hikes-key-rate-by-50-basis-points-will-continue-to-respond-forcefully-if-needed.html?__source=iosappshare%7Cnotion.id.NotionShareExtension
4. https://www.cnbc.com/2022/12/15/ecb-hikes-rates-sees-significant-rises-ahead-as-it-announces-plan-to-shrink-balance-sheet.html?__source=iosappshare%7Cnotion.id.NotionShareExtension
5. https://www.msci.com/documents/10199/cf07779f-3f88-6fc0-2a55-bfcc2011fcbf
6. https://www.cnbc.com/2022/12/12/southeast-asian-markets-are-in-for-a-bungee-jump-says-jpmorgan.html?__source=iosappshare%7Cnotion.id.NotionShareExtension
7. https://www.cnbc.com/2022/12/13/copper-prices-traditionally-a-barometer-for-the-global-economy-are-expected-to-soar-next-year.html?__source=iosappshare%7Cnotion.id.NotionShareExtension
8. https://www.cnbc.com/2022/12/14/fusion-power-wont-be-widespread-for-at-least-a-decade.html?__source=iosappshare%7Cnotion.id.NotionShareExtension