Last week we saw the Fed deliver a hawkish outlook on interest rates, futures market are now pricing in rate increases from November 2022 which is a vote of confidence in the US economy. Obviously the critical part of this puzzle is whether Jerome Powell et al can manage the reduction of stimulus in such a way as to navigate controlled inflation without hindering economic expansion, a delicate balance that’s likely to determine the health of risk assets over the coming years.
Locally the RBA is winning the rate arm wrestle with its rhetoric holding firm that hikes aren’t expected until 2024 even though many economists are expecting an earlier move. However when we look further up the curve 10-year bond yields have been edging higher for the last few weeks, both in Australia and the US. The correlation between both is very high and we feel they have bottomed as a COVID recovery economic recovery is priced into financial markets.
