Traders’ Diary: Everything you need to get ready for the week ahead

What grabbed the headlines last week?

Peaking US inflation

It was the inflation report investors had hoped for as core CPI had the smallest monthly increase in over a year – at 6% vs forecast of 6.3%.

The headline inflation came in at 7.1% compared to the consensus estimate of 7.3%.

Although the cost of living in the US continues to rise at level unseen in decades, the rate of inflation does seem to have peaked.

“We already have goods deflation, and housing service inflation will be the next area to see a drop,” said Jack P. McIntyre, portfolio manager at Brandywine Global.

“Labor weakness is the missing element to bring sticky service inflation lower. All these trends point toward bonds doing well in 2023.”

Nigel Green, CEO of consulting firm deVere, was more cautious.

“We may have seen, or be seeing, peak inflation but clearly, inflation will still be an issue for well into next year,” Green said.

“As such, investors should take a look at stocks that are likely to be recession-resistant.

“For example, people will still need food, energy and financial services during a downturn. These sectors should do well.”

Jerome Powell’s speech

Jerome Powell’s press conference following the Fed’s decision to hike another 50bp made investors a little nervous.

Powell warned that FOMC policymakers were not close to ending their aggressive stance on rate hikes.

“We still have some ways to go,” Powell said at the post-meeting conference.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” he added.

As expected, the FOMC members raised the benchmark rate by 50 basis points to a 4.25% to 4.5% target range.

However, Powell’s comments have now increased the market’s projected terminal rate to 5.1%, higher than the consensus 5% before the meeting.

Previously, Powell had signalled that 4.6% would be the ceiling. Although inflationary pressures have moderated, the Fed now looks set to continue tightening into 2023 to ensure that CPI is back to its mandated target of 2%.

“As for the impact on markets, further downside looks on the cards for equity markets, as investors unwind dovish Fed bets and continue to de-risk their portfolios,” said Daniel Moss, market analyst at Vantage Markets.

Europe keeps hiking

Meanwhile, the Bank of England (BoE) raised its key rate by a half-point to 3.50%, the highest level since 2008. The BoE minutes noted that more rate hikes could be needed.

The Bank of England seems to be intentionally driving the UK’s consumer-led economy into a deeper recession, putting households and business harder under the cosh, in order to cool inflation.

The European Central Bank (ECB) also raised its key rate by 50bp, sending European yields surging higher.

ECB President Lagarde signalled that future rate increases will need to be significant and at a steady pace.

Invesco’s annual investment outlook has addressed the breadth of possibilities that lie ahead in the new year.

“If inflation remains stubbornly high, we assume central banks will continue tightening monetary policy for longer.

“In our view, this would maintain the contraction regime for longer than we expect in our base case.

“We would expect this to increase the probability of a global recession, resulting in worse growth and further pain in risk assets.

“Our alternate scenario anticipates the economy remaining in contraction, as inflation remains persistent and central banks are unable to pause tightening,” saids the Invesco report.

The Economic Calendar
Monday December 19 – Friday December 23

All sources from Commsec

Australia and New Zealand

TUESDAY
RBA meeting minutes

WEDNESDAY
Detailed skilled job vacancies for November

FRIDAY
Private sector credit for November

Global

MONDAY
US NAHB housing market index for December
EU construction output for October
EU wages for Q3

TUESDAY
US weekly crude oil stock
EU current account for October

THURSDAY
US economic growth (GDP) for the September quarter

FRIDAY
US personal income and spending for November

The ASX IPO calendar for this week

Dates are from the ASX website. Could change at short notice.

Taiton Resources (ASX:T88)

Listing: December 19

IPO: $10m at $0.20

Taiton’s projects include the Lake Barlee gold project in WA, the Highway polymetallic project in SA, and the Challenger West gold project also in SA.

The company believes its dominant land holding at the Highway Project will allow it to potentially uncover the Next Elephant Deposit in Australia.

Taiton will be undergoing a series of grassroots exploration and also several walk-up drilling targets.

SOCO Corp (ASX:SOC)

Listing: December 23rd

IPO: $5m at $0.20

SOCO is an IT consultancy company and a certified Microsoft Gold Partner.

The company specialises in cloud solutions, business applications, enterprise information management, support services and integration projects.

Its clients include federal government, local and state government, along with large corporates.

SOCO has been profitable every year since incorporation in 2013, and the team has delivered strong revenue growth rate of 56% over the past six years.