Weekly Market Outlook and Review – Week Ending 20 January

US Federal Reserve Chair Jerome Powell participated in a panel discussion on Tuesday (Central bank independence and the mission - changing viewpoints) in his first public appearance of 2023 and reaffirmed the commitment of the central bank to keep inflation under control. As interest rates are raised to slow the economy, Powell said, "restoring price stability when inflation is strong might involve policies that are not popular in the near term." However, there were few remarks about the new policy.

However, US inflation was the week's primary high point. According to the US Bureau of Labor Statistics, consumer prices decreased for a sixth straight month in the 12 months leading up to December (2022), easing to 6.5%. (BLS). This comes after the June 2022 high of 9.1%. US core annual inflation, which excludes energy and food, decreased by 0.3 percentage points from November's 6.0% figure to 5.7% in the 12 months ending in December.

Risk assets saw a buy as a result of this because market players expect the US Federal Reserve's policy tightening to slow down (Fed). The market has virtually priced in a 25 basis-point rise for the next Fed meeting on February 1 based on the pricing of Fed Fund futures contracts, according to the CME's FedWatch Tool. This move would raise the Federal Funds target range to 4.50%-4.75%.

Major US stock indexes battled their way into another week of gains on the markets (S&P 500 up 2.7%), helped by favorable US inflation data and the start of Q4 results on Friday, which were heavily weighted toward banking companies. While Wells Fargo & Co missed quarterly targets, JPMorgan Chase & Co exceeded them. The closely followed FAANG index in the equities market was noteworthy as well since it had a strong week of gains. Amazon increased by 14.0%, while Netflix was close behind at 5.47%.

The (main) currency market saw notable outperformers including EUR/USD, AUD/USD, and GBP/USD rise by 1.78%, 1.48%, and 1.15%, respectively. The USD/JPY fell by a startling 3.17% for the week, while the USD/CAD lost 0.35%.