Global sharemarkets, near record highs, are causing investor concern about the sustainability of the ‘Goldilocks’ scenario of resilient economies, easing inflation, and gradual interest rate cuts. Fund managers and strategists warn that these conditions may be difficult to maintain as global growth gathers momentum. SG Hiscock chief investment officer Rob Hogg noted that markets are currently priced optimistically, and a surprise uptick in growth with persistent inflation could force a shift from rate cuts to hikes, challenging this outlook.
Australia’s recent interest rate increase by the Reserve Bank, the first major central bank outside Japan to do so, is being seen as a potential warning sign for global markets. LGT Wealth Management investment chief Scott Haslem suggests that the RBA’s decision highlights the pressures building from earlier rate cuts and increased fiscal spending. He says Australia may be a bellwether, with improving consumer and housing activity occurring alongside uncomfortably high inflation.
While some analysts, like Ten Cap’s chief executive Jason Todd, argue that markets are sustainably elevated even with current inflation levels, others see risks tilting towards stronger global growth that may limit further rate cuts. UBS Global Wealth Management managing director Andrew McAuley points to the robust US economy, driven by government spending and investment in AI infrastructure, as a source of inflationary pressure. Schroders multi-asset portfolio manager Adam Kibble notes that central banks are becoming increasingly cautious due to slowing inflation progress, creating a ‘higher-for-longer’ interest rate environment.
Overall, the central question for markets is how inflation will respond to re-accelerating global growth. LGT’s Scott Haslem anticipates that recent rate cuts, combined with renewed fiscal spending, will revive consumer activity and tighten labour markets, putting a floor under inflation. He suggests that as central banks shift their tone from adding liquidity to ending it, market returns may become less buoyant and harder to achieve.
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