Markets started the year in confident mood, betting that the US Federal Reserve would take the lead on interest rate cuts, with as many as six cuts in 2024. Those hopes have since faded and forecasts of a first cut in June are looking more uncertain.
‘Fear of missing out’ has been a major catalyst driving markets higher in recent months. As we approach the end of the first quarter of 2024, we consider where that leaves the outlook for asset prices.
It has been said many times that the last mile of disinflation is the most difficult. With markets betting on the timing of the first cut in interest rates, every monthly inflation number is both eagerly anticipated and closely analysed for clues.
This year, markets will remain transfixed by familiar stories: the path of inflation; how fast interest rates will fall from multi decade highs; and the potential for a growth slowdown. The returns for the year will likely pivot on how the reported data fall out.
Markets are approaching year end in confident mood, anticipating interest rate cuts in the first half of next year. Despite western central banks’ repetition of the ‘higher for longer’ mantra, hopes are rising over the timing of the first cut and how quickly rates will then fall.
Interest rate uncertainty has gripped the markets, after US jobs and inflation data beat expectations. A sharp rise in US Treasury bond yields has lowered the attractions of more highly valued equities.
Despite forecasts of recession, GDP growth in the US has so far proved resilient and US inflation has beaten forecasts. Conversely, in China the recovery has yet to fire up and consumer price growth is subdued.
As we enter the dog days of summer, markets are struggling to find conviction, overshadowed by the possibility of recession. Meanwhile core inflation remains sticky and labour markets are still tight.
Clouds of uncertainty still hang over financial markets, whether about inflation, recession or the peak in the interest rate cycle. Throw in the brinkmanship surrounding the US debt ceiling and it’s no wonder markets have been range bound in recent months.
Equity markets have spent the last month moving in a relatively narrow range. There seem to be multiple headwinds. Even before the regional banking crisis in the US, higher interest rates have curbed the demand for credit, while core inflation remains stubbornly high.
After the turbulent days of early March, markets now seem to view the banking crisis as a small number of idiosyncratic events. And yet a broader credit squeeze remains a possibility, which could rein in economic growth.
February proved disappointing for markets, as stronger economic data crushed expectations of falling inflation and an early pivot in interest rates. Central bank rhetoric has become more hawkish and higher terminal interest rates are now forecast.
Markets have rebounded in 2023, as deeper recession fears fast became a thing of the past. Hopes are growing for a softer economic landing, despite persistently hawkish central bank rhetoric.
Financial markets had a tough time in 2022, leaving investors with ‘nowhere to hide’. Central banks were blamed for their aggressive game of interest rate catch up, as inflation soared to levels not seen for decades.
Financial markets have been battered by runaway inflation and fast rising interest rates. So much so that 2022 will go down as the year where there was ‘nowhere to hide’.
This has been called the ‘make or break decade’ for action on climate change - perhaps the most urgent challenge of our time. COP27, the UN climate conference, has now drawn to a close. But the burning question remains. Will the commitments made by major economies prove to be sufficient?
As this extraordinary year draws to a close, records for extreme performance continue to be smashed by equity, bond and currency markets. It’s all down to the central banks and their response to runaway inflation.
With inflation still at the top of the agenda, financial markets remain at the mercy of hawkish rhetoric on monetary policy. Central banks, including the US Federal Reserve and the European Central Bank, have promised to act decisively against inflation, even at the expense of economic growth. And both equity and fixed interest markets have responded negatively.
Economic forecasts predict inflation peaking over the summer months in major economies, before falling back towards the end of the year. While food and energy prices continue to soar and headline inflation levels ratchet ever higher, it can be hard to see what would cause inflation and indeed interest rates to pivot downwards.
We examine these diverging East/West trends and look at how they could play out across different asset classes. We also focus on recent adjustments to our tactical asset allocation.
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