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.
Architas’s Lorna Denny sat down with Capital Group’s Claire Swinden to discuss how investors might approach their investment goals and the importance of investment planning. Concise and highly informative, it highlights some essential issues for consideration as well as providing investors with a helpful checklist.
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.
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.