In September, concerns of a global recession and monetary tightening hit capital markets hard: both global equities and global government bonds declined as the Fed and the ECB continued their tightening cycle.
Plain sailing. Batten down the hatches. Strong headwinds. When describing markets, it's common to call upon maritime metaphors to convey uncertainty. In the current economic landscape, we find ourselves reaching for them again.
At different paces, and with varying displays of conviction and credibility, western central banks are continuing to raise interest rates, closing the stable door ever more firmly as the inflation horse canters merrily on the horizon. As we write, the rates priced into the money markets suggest that US, eurozone and UK policy rates will peak at 4.6%, 2.9% and 4.9% respectively, and will do so during 2023. Swiss rates are expected to peak at 2.2%, during 2024.
Sterling has fallen further after the UK's "fiscal event", making higher interest rates even more likely. However, its all-round weakness is being overstated, as is the threat to the UK government's creditworthiness.