Turn in Market Winds

What a difference a week makes in the financial world! Now, as we take stock of the past week, we’ve seen a remarkable rebound in the markets that has provided so much needed respite from previous weeks and months for that case.

Let’s cut through the complexity: nothing major has shifted in the economic numbers we track. Yet, we’ve seen a softening in the stance of the big banks that guide the economy, particularly in the U.S. and Europe, and that’s had a big impact on market mood. Basically, these banks are hinting they might not raise interest rates as much as we thought, which historically has been a good sign for the markets.

Earlier, Europe’s central bank decided not to change interest rates, which was a bit unexpected considering the region’s sluggish economy. Then, the U.S. Federal Reserve seemed to echo this gentle approach, which has investors thinking maybe we’ve reached the high point of interest rates for now.

Even Japan’s central bank, despite suggesting they’d let interest rates creep up a bit, then introduced a plan to boost the economy, which sent mixed messages to investors. The U.S. Federal Reserve also followed suit, hinting that they might have done enough to cool off the economy and bring down inflation without needing a recession to do it.

The UK’s central bank also held off on raising rates this week, though they’re still worried about high inflation driven by wages. They’re not thinking about cutting rates just yet, and are keeping a close eye on inflation to decide if they need to act further. From what we can see, the investment world believes that we might have hit the peak of interest rate hikes. Even in the case of the UK, another hike isn’t fully expected. Looking ahead, investors are now betting that U.S. interest rates might even go down in the latter half of 2024.

This past week, Brazil actually cut their rates, and there’s talk of rate cuts in Central Europe too, as high inflation there starts to cool down amidst sluggish growth.

See our chart here for a visual guide on what’s happening with interest rates.

Globally, the combination of government spending and central bank strategies is beginning to lean towards supporting growth again. China and Japan have both announced big plans to pump money into their economies, which is making the investment climate look more inviting.

A lot hinges on the U.S. We know that when the stock market feels positive, it can boost the confidence of households and businesses – and we’ve seen a bit of that following the recent Federal Reserve meeting.

It seems like big investors were playing it safe, avoiding risks in stocks and bonds, while regular folks were tucking money into savings rather than the markets. But this recent market bounce suggests that the cautious stance might be shifting, despite only just getting used to the idea of higher rates for longer.

Though it’s early days, the end of the year often brings a bit of a boost to the markets – a silver lining to the cloudy days of November and December. We’re hoping the days ahead are a bit brighter for everyone’s investments. Keep an eye out here for updates as we track these changes.

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This article is for information purposes only – should not be perceived as financial advice. We recommend you should always speak to a financial adviser before making any investment decisions.

Please note, past performance is not a reliable indicator to future returns. Your investment may fall as well as rise, and you may not get back what you put in.