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Interest rates
OpinionComment
Chris Iggo
Chris Iggo

Macroscope | How to lift global economic gloom and restore investors’ faith in recovery

  • The belief in a soft landing for the global economy is not widespread and, as a result, participation in the strong equity market performance has been limited
  • Halting interest rate rises, an improved global growth outlook, and an end to the war in Ukraine would help ease investor concerns

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A maintenance worker sweeps the street in front of a row of new homes in Fairfax, Virginia, on August 22. Sales of homes in the United States fell in July as elevated mortgage rates and limited housing supply held buyers back. Photo: AFP
Chris Iggo
Markets have gone through something of a correction this month. The best-performing equities this year have delivered losses over the summer. Asian bourses and growth sectors like technology have been hit, with positive performances only seen in more defensive, higher-quality indices such as the Dow Jones Industrial Average.
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On the bond side, despite better news on inflation and more evidence that we are at the peak of the global interest rate cycle, most fixed-income sectors have delivered a negative return over the past month. Long-duration strategies – those betting that long-term bond yields will fall – have underperformed.
There is frustration everywhere. The belief in a soft landing for the global economy is not widespread and, as a result, participation in the strong equity market performance has been limited this year. Investors and businesses have been more aligned with recession fears.

What could change this sentiment and make things less frustrating? First is a signal from central banks that rate rises are at an end. This requires further falls in inflation in the US and Europe. Only then would investing in something other than cash become more enticing. Market expectations are for interest rates to start coming down in 2024.

The soft-landing scenario suggests that interest rates could stay elevated for some time, even if there are no more increases. However, some monetary policy easing is likely in 2024 in the US, Europe and elsewhere as global inflation slows and the effects of monetary tightening flow through to reduced borrowing.
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