Less-hawkish Fed buoying upbeat momentum of gold in 2023
The global economy is embracing a slowing pace of monetary tightening amid signs of weakened pricing pressures after a series of sizable rate hikes in 2022. But the side effect emerges as high cost of capital causes falling purchasing power and a spike in unemployment.
As economic dynamics heighten risks of recession, gold has become to play an increasingly relevant role in investor portfolios with which under the environment of economic fallout, risk sentiments soar on slump in economic growth, which prompts investors to turn to gold as both ‘safe haven’ investment and collateral.
Looking ahead, the U.S. stepping near the end of tightening cycle, ongoing geopolitical tensions, a sinking U.S. dollar (USD), volatile fluctuations in stock and bond market, and gloomy global economic outlook all set to remain, thus shinning the upside momentum of gold. We forecast gold prices will reach between USD $1,900 and $2,000 per ounce in 2023.
February 2, 2023 Economic Acumen CEBI Research
The Fed unleashing milder rate hike during the first FOMC meeting in 2023
The Fed announced slower pace of interest-rates increases of 25bps, marking further deceleration of the pace of monetary tightening. The benchmark FFR will be adjusted upward within a target range between 4.50% and 4.75%.
The Fed has acknowledged that boarder pricing pressures show signs of slowdown but low unemployment rate still keeps the service inflation at high level. In sum, the Fed lowering the size of rate hike during the second straight FOMC meeting was mainly due to the fact that a series of rate hikes in 2022 has led to economic adjustment to the U.S. economy with which high borrowing costs cool down pricing pressures, decelerate the growth of economic activities and enhance risks of recession.
The Fed will maintain gentler tightening stance in monetary policy during 1H2023 and will pursue 25bps rate hike in the next two FOMC meetings in March and May to ensure that inflation moves further towards 2% target while engineering ‘soft landing’ for the U.S. economy.
February 1, 2023 Economic Acumen CEBI Research
China’s swift reopening boosting manufacturing and service activities
January’s Manufacturing PMI edged up to 50.1, exceeding December’s 47.0 and staying in line with the consensus estimate while non-manufacturing PMI rose sharply to 54.4, which exceeded the consensus estimate of 52.0 and significantly rebounded from December’s 41.6. Both figures rebounded above the reading of 50, the first time since September 2022, representing that reopening of factories and consumption normalization restored expansion of production and services.
Production and demand for services demonstrated upbeat growth momentum with which January PMI indicated continued economic turnaround of China’s economy and market sentiment strengthened to a high level.
China’s swift reopening on the back of exit from zero-Covid policy alongside continued policy stimulus brighten near-term economic outlook under which normalization of domestic and cross-border economic activities strengthens expansion of aggregate demand of goods and services, thus ensuring a more sustainable recovery of economic strengths.
January 17, 2023 Economic Acumen CEBI Research
China's economy encountering moderated growth in 2022
China’s economy grew moderately by 3.0% in 2022, staying above the consensus estimate of 2.7% but significantly cooling from 2021’s 8.4%.
On quarterly basis, economic activities demonstrated widening moderation in 4Q2022 as China faced abrupt changes in the economic environment and looming market uncertainties in the wake of sustained pressures from ongoing pandemic, supply chain disruptions and debt problems afflicting property sector. The growth headwinds put China’s economy embedded into YoY quarterly expansion of only 2.9% during the last quarter of 2022 from 3Q2022’s 3.9%.
Looking forward to 2023, China’s reopening policy initiative on the back of exit from zero-Covid policy alongside continued policy stimulus brighten near-term economic outlook. We are of the view that China’s economy will grow at a medium growth rate in 2023 with more focus on boosting domestic demand. China’s macroeconomic conditions remain sound and we forecast China’s GDP growth will reach 5.0% YoY in 2023.
January 13, 2023 Economic Acumen CEBI Research
Policy divergence bracing for uneven global growth in 2023
Softening global growth expectations are escalating amid heightened market uncertainties namely continued anti-inflationary stance of major central banks, ongoing Russia-Ukraine conflict, and fluctuation of energy and food prices. Global central banks have pursued different scale of adjustment on aggressive monetary tightening along with governments’ fiscal expansion to avoid financial meltdown.
Global inflation has stepped near the peak in late 2022 but will remain high in 2023. The developed nations will maintain tight monetary stance to curb inflation, which causes falling purchasing power and a spike in unemployment, thus intensifying economic and geopolitical headwinds and driving the global economy closer to the edge of a recession.
The previous and current hawkish monetary policy actions will add urgency for the implementation of more macroeconomic stimulus measures to rekindle growth momentum. Mixed trends of growth momentum in different economies become more apparent, thus lead to a strong likelihood of sluggish global growth in 2023.
January 11, 2023 Economic Acumen CEBI Research
China’s reopening fueling growth rebound of the HK economy
The border between China and HK has been gradually reopened on 8th January 2023, thus ending three years of pandemic restrictions that have isolated the financial hub from the mainland and paving the way for a restoration of economic and social activities.
Border reopening alongside a stabilized epidemic situation will create favorable conditions for the gradual and orderly resumption of quarantine free travel between the Mainland and HK, thereby injecting greater impetus into the HK economy.
China’s switch from the ‘zero-Covid’ policy and HK’s removal of some Covid-19 restrictions coupled with stronger fiscal stimulus, improvement of pandemic conditions and pent-up demand for goods and services will accelerate pace of work and consumption normalization as well as cross-border movement in coming quarters and the HK economy is expected to restore modest growth momentum of 4.0% in 2023.
January 6, 2023 Economic Acumen CEBI Research
Cautious optimism circling China and HK markets
Throughout 2022, sizable U.S. rate hikes to tame inflation, unresolved energy and food supply-chain disruptions, China’s Covid lockdowns and abrupt switch from zero-Covid policy alongside geopolitical risks were dominant factors enhancing turbulent fluctuation of global financial markets. Stock markets across the globe have been on volatile swing, which has been mainly driven by uncertain economic outlook and tightening liquidity flow.
Turning towards 2023, the trajectory of the stock markets continues to demonstrate split trend around the globe. The intensification of economic and geopolitical headwinds will lead to slower global growth, thus enhancing fears of growing recession risks. The complication of global economy paves the way for more near-term fluctuations in financial markets but provides more investment opportunities in different markets and sectors.
We are of the view that as the economic expansion driven by China’s reopening and rebounding domestic demand broadens out, investors’ optimism will escalate under which China and HK equities point to embrace for volatile rally in 2023.
January 3, 2023 Economic Acumen CEBI Research
China’s PMI demonstrating continued contraction in December
Amid Covid-induced lockdowns disrupting economic activities, China’s manufacturing activities demonstrated deepened contraction in December as the newly released PMI reached 47.0, staying below the consensus estimate of 47.8 and November’s 48.0. Non-manufacturing PMI, which covered activities in construction and service sectors, declined sharply to 41.6, against the consensus estimate of 45.0 and November’s 46.7.
The latest PMI indicated that the pandemic takes toll on factory output, business operations and services. Complicated situations of Covid waves deteriorate economic conditions, thus leading to further drop of industrial activities and consumption.
China’s abrupt switch from the ‘zero-Covid’ policy may trigger short-term surging infections that could cause temporary labor shortages and enhance supply chain disruptions. The Chinese manufacturers and service providers will face more operational challenges in coming months. China’s policymakers will prioritize countercyclical monetary and fiscal support for businesses that are hit hard by the Covid epidemic, thus cushioning China’s economy against downside risks and stabilizing growth momentum.
