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.
Russia’s invasion has accelerated the schedule of central bank tightening. Markets are now pricing ten 0.25% rate rises by the United States Federal Reserve in 2022.
Large parts of the Chinese economy are in some form of lockdown. China’s central bank is lowering interest rates while the West is raising interest rates. Capital flows out of China are accelerating.
Inflation risks are on the upside, although interest rates are rising, they mightn't rise as high as expected.
Capital allocations to price setting business and real assets are an investor’s best protection from inflation.
2021 was another harrowing year. Many businesses continue operating on life support. As we commence 2022, the Omicron variant reminds us that a return to normality is impossible to predict.
Meanwhile, markets remain near all-time highs, although cracks are emerging. The growing and ignored elephant in the room remains government debt. We explore how this might be resolved, and what impact this may have on investors.
While there is always something to discuss each quarter, markets are dishing up more conversation topics than usual. We provide our usual economic and investment commentary, with a focus on property, mounting risks in China and potential for ‘The Great Resignation’.
Our investment views remain aligned to those outlined last quarter, despite investment risk sentiment appearing to have increased. We share some out of favour views on cryptocurrencies and finish up this quarterly edition with some insurance industry specific news.
