The probability of recession arising, and inflation re-accelerating have both being revised up, discussed in full within our economic update. This quarter we also take a walk down memory lane, looking at similarities to 1948 and offer up some killer dinner party conversation fodder... the 'kinked Phillips curve' framework, in our deep dive into labour markets.
The final quarter of 2023 saw markets firm on a soft landing outcome, with a rally in equities and a pricing of interest rate cuts in 2024. Disinflationary forces have seen Central Banks make remarkable progress in returning inflation back towards target. Might this be the goldilocks outcome Central Bankers hoped for and #markets thought impossible just 12 months ago?
This Quarterly discusses the two competing economic scenarios and the key data points that help inform our views on the outlook for 2024. We finish off with a run down on investment positioning, pockets of potential value and our favourite graph from 2023.
#Investment #markets appear caught at an #inflection point. Tight #labourmarkets point to continued #economic progress and a chance at sticking the fabled soft-landing. Other data, in particular household consumption, speaks to the possibility of #recession.
This quarterly we also dig into #China's changing economic paradigm and touch on the scope for attractive vintage years in #privateequity.
As attention spans shorten, we feel there is value in writing and reading something of substance, if only once a quarter (and if of questionable substance)! Chance this #quarterly over your next #coffee break.
Despite well understood long and variable lags, bond markets are expressing that interest rates might be too restrictive, particularly in the US. Or read another way, although interest rates aren’t nominally high by historical standards, after a decade of near zero interest rates, there might be too much debt to support a normalisation of interest rates without breaking something.
Bond market pessimism has been fanned by Central Banks purposefully engineering a slow-down. We discuss our views on increasing recession probabilities.
China was hoped to be the economic growth engine in 2023. As the year progresses things are looking increasingly ’bitter‘. Stimulus is the watchword…
Fixed income investing is back, and longer duration exposures again provide traditional portfolio diversification benefits.
It seems we are nearing the end of the interest rate tightening cycle, with the RBA keeping things on hold, the Fed having slowed its rate of tightening, and the RBNZ expected to have put through their final super-sized rate hike.
Widespread weakness can be seen in the US banking sector. A deposit rate paradox has emerged, where raising deposit rates leads to a reduction in net interest margins, causing banks to operate at a loss. While leaving deposit rates near zero increases the likelihood that depositors withdraw their capital.
The rapidly changed interest rate environment now rewards a more traditional mix of bonds and equities, which deliver diversified return characteristics for the first time in some years.
In 2022 inflation awoke from its long slumber and Central Bankers were caught napping. They then responded with the fastest set of interest rate rises in history. Fortunately, there are early signs of success, with inflation expectations remaining subdued.
OECD investment in China has plummeted. China appears to be re-evaluating their geopolitical isolation.
Yields have nearly doubled in many fixed income markets. Equity valuations now trade much closer to long term averages, albeit the US remains relatively expensive.
Seemingly temporary #inflation pressures have morphed into structural inflation, driven by a shortage of housing and workers. This has resulted in higher #interestrate expectations and being hugely disruptive to #markets.
#CentralBanks are slamming on the brakes. Where the Fed goes, the world follows, sometimes unwillingly. The sharp change in central bank policy settings has been a catalyst for a decline across all #assetclasses.
Could 2022 be the year market psychology transitions from flawless to hopeless? Find out in the #SnowgumQuarterly.
Two significant monetary policy shifts are underway, inflation is running at 40-year highs and markets are signalling the RBA cash rate could be as high as 3.5% by year end. As expectations adjust to interest rates rises, asset class valuations have come back down to earth.
