16 December 2022
In our last Weekly Buzz of 2022, we cover the latest US inflation data and bring you some good news before we sign off for the year. Happy holidays, and we’ll see you in January! 🎊
US inflation slowed in November, likely bringing a collective sigh of relief to policymakers and market watchers ahead of the holiday season. The headline CPI came in at 7.1% year-on-year in November, lower than last month’s 7.7% reading and against expectations of a 7.3% increase. Core inflation, which excludes food and energy prices, rose by 6% year-on-year in November.
What does the inflation data mean?
While inflation is still significantly higher than the Fed’s 2% target, it’s starting to move in the right direction. Cooling inflation reinforces expectations that the Fed will continue to downshift its pace of rate hikes after its 50 basis point hike earlier this week. Markets are now pricing in a peak fed funds rate of 4.9% - that compares with a median projection of 5.1% from Fed officials.
Some good news to end the year: the International Energy Agency (IEA) reports that renewable energy is set to overtake coal to become the world’s main source of energy by 2025. Amid the global energy crisis driven by Russia’s invasion of Ukraine, countries have turned to wind and solar power to boost their energy security.
Europe has rapidly acted to reduce its reliance on Russian gas, and is expected to add twice as much capacity for renewable energy between 2022 and 2027 as it did in the last five years.
The US will also get over a fifth of its energy from renewable sources by the end of 2022, as it reduces its dependence on natural gas and coal. Growth of wind and solar capability should also ramp up in future, thanks to $369 billion USD in funding from the Inflation Reduction Act passed earlier this year.
Under China’s 14th Five Year Plan, the country is expected to build almost half of the world’s new renewable power capacity between 2022 and 2027.
India has passed various policy measures to help its transition to clean energy – with a particular focus on solar.
Clearly, there’s a lot more still to be done, but the broad policy support we’re seeing gives the world a better chance of reaching net zero emissions by 2050.
PS: If you’re looking to add exposure to clean energy to your investment portfolio, check out our Environment and Cleantech thematic portfolio.
A yield curve plots the relationship between the interest rates and maturity of bonds with similar credit quality. The shape of the yield curve gives us information about bond investors’ risk sentiment and expectations of future economic activity.
Source: Corporate Finance Institute
Normal yield curve, explained:
In normal times, a bond with a longer maturity tends to pay a higher interest rate (yield) than a bond with a shorter maturity. That’s due to the higher risk and opportunity costs associated with longer maturities. In other words, a 2-year bond would offer a lower yield than a 5-year bond. This means that a normal yield curve has an upward slope.
Inverted yield curve, explained:
There are times, however, when the yield curve inverts – meaning short-term bonds offer higher yields than long-term bonds. Inverted yield curves suggest that investors are worried about the economy’s longer-term prospects, and they’re generally taken to be a sign of an impending recession.
In the news:
The US Treasury (UST) yield curve is currently inverted. The yield on 10-year USTs is more than 70 basis points lower than the yield on 2-year USTs. This reflects investors’ expectations that the Fed will continue raising interest rates to fight inflation, even as recession risks rise.
In June 2022, we launched Flexible Portfolios, which let you build and customise your own portfolios from more than 55 different asset classes.
Now, our investment team has curated three templates to help you kickstart your journey to customising portfolios even faster⚡
You can choose from Passive Income, World Index Tracking, and Risk-focused templates – and tweak them to suit your preferences. Remember, you can add and remove assets, and change your Flexible Portfolio allocations whenever you want!
1. Put your phone away
Sick of seeing the markets in the red, and feeling tempted to sell? If you’re investing for the long term, put your phone away (and get savvy about investing in a bear market instead).
2. Wait just 10 minutes
‘Tis the season of shopping, and you’re about to make that splurge purchase you kind of want… but don’t really need. Try waiting just 10 minutes, and “surf the urge”. You might find that that urge will crest and subside.
3. Spend towards your values
That includes yourself and your relationships. It’s not too late to carve out your holiday budget for experiences and gifts for your loved ones! Remember, financial planning isn’t just about taking care of your material needs.
Get more science-backed tips in our new series, How to Build Better Financial Habits with Wall Street Journal bestselling author, Nir Eyal.