06 February 2024
If you are covering the latest news in financial markets, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“Markets have made a fairly cautious start to this week, with strong macroeconomic data in the US leading to an investor re-think about the paths of rates from here. They are not only considering what rates will do over the next 18 months but in the medium to long term too, with the 10-year treasury yield up nearly 30bps in the past two trading days. This is partly reflective of comments from Fed members signalling they are in no hurry to cut rates despite more favourable inflation figures, but also due to the raft of strong economic data we have seen in recent days. This includes not only a blow-out jobs report on Friday, but also a better-than-expected reading from the ISM services index on Monday, coinciding with Deutsche Bank capitulating on its expectations for a recession in 2024 with just 0.3% GDP growth over the year, to now forecasting it will be avoided and the economy will see real GDP growth of 1.9% in the same period. This is a stark a difference and a clear demonstration of how the pandemic turned the economic cycle on its head.
“With the recent stock market rally in the fourth quarter of last year having largely come on the back of signs that rates would soon fall, it doesn’t seem unreasonable that the first quarter of this year could see some of these gains slip a little, even if ultimately of course it is far better for all that the recession is dodged and rates take a little longer to return to neutral.
“Chinese markets have somewhat the opposite problem currently, with a dearth of economic good news matched by government institutions talking up the likelihood of stimulus. This is already on the back of much government intervention in the market to help stem the tide with curbs on short selling and ‘encouragement’ of investment institutions to step in more meaningfully. China’s malaise is getting government attention at the highest level. This has prompted markets to rally this morning, but significant policy action will be required to revive a market that has declined nearly 30% in the past 12 months.”
