Investment Institute
Weekly Market Update

Take Two: US could raise rates faster; China unveils plan to boost economy

  • 30 May 2022 (5 min read)

What do you need to know?

US interest rates could rise more quickly than markets are anticipating, and policy could move from “neutral” to “restrictive”, minutes from the latest Federal Open Market Committee meeting showed. Most policymakers believe a 50-basis-point hikes could be necessary at “the next couple of meetings”, as they tackle inflation. Meanwhile the second estimate of first quarter (Q1) GDP growth showed the US economy shrank by 1.5%, more than the 1.4% contraction earlier reported. The Congressional Budget Office estimated last week that GDP will grow 3.1% in 2022, implying it believes the Fed will be able to raise rates without tipping the economy into a recession.

Around the world

China is facing greater challenges to some parts of its economy than when the pandemic first hit in 2020, Chinese Premier Li Keqiang admitted. He unveiled a 33-point policy including tax cuts and spending on infrastructure to help get the economy back on track, calling on officials to ensure “reasonable” growth in the second quarter and to reduce unemployment. His comments added to expectations that China will not meet its target of around 5.5% growth this year, particularly while COVID-19-driven lockdowns continue. The consensus among analysts according to Bloomberg is now 4.5%.

Figure in focus: 93

Germany’s closely watched Ifo business climate index rose to 93.0 points in May from a revised 91.9 in April. Most economists had expected a decline and Ifo President Clemens Fuest said the economy had “proven itself resilient in the face of inflation concerns, material bottlenecks, and the war in Ukraine”. Meanwhile, Q1 GDP growth was confirmed at 0.2% quarter-on-quarter, and 3.8% on an annual basis. Some had feared Germany might see a technical recession after a quarterly 0.3% dip in Q4. The first estimate for the May composite Purchasing Managers’ Index was also ahead of forecasts at 54.6.

Words of wisdom

Quad: The grouping of the US, Japan, Australia and India under the auspices of the Quadrilateral Security Dialogue. The Quad convened last week for a summit in Tokyo as the arrangement is revived amid changing attitudes to the scope of China’s influence in the region. The group was originally formed as part of the response to the 2004 Indian Ocean tsunami. As part of President Joe Biden’s visit to Asia, the US also announced an Indo-Pacific Economic Framework, with partners including Australia, Japan and Korea, as it seeks to promote US “economic leadership” in the region.

What’s coming up?

Eurozone Economic and Industrial Sentiment indices, as well as the latest Consumer Confidence measure for the bloc are published Monday, with May’s flash inflation data following on Tuesday. Australia’s GDP growth numbers for Q1 land on Wednesday when the Bank of Canada also meets to decide on interest rates. Brazil’s Q1 GDP numbers arrive on Thursday while on Friday US job numbers for May are announced.

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