Market Musings 230923
The Detente into the Downturn
Central Banks pause now, but will later have to cut
Summary
Central banks in US, Europe, UK, Switzerland at peak interest rates
Economic activity slows, including employment
Next Central bank moves will be cuts, like Brazil
After the Fed pauses, bonds typically perform well
Constrained capex, robust demand boosts integrated oil & gas producers
Podcast
Top investment themes to year-end
In this podcast, Edmund Shing, Chief Investment Officer, unveils his refreshed Investment Themes for 2023.
When consistent losers become winners
Scarcity and Security are the new watchwords
New income opportunities: from TINA to TARA
All my recent podcasts can be found on Apple podcasts (search for “BNP Paribas Wealth”) or Spotify (click on link here).
Have we seen the peak in central bank interest rates?
That is the key question. The last 12 months have seen sharp rises in reference interest rates of central banks across the world, from the US to Europe to the UK.
Remember, just over 12 months ago, interest rates were close to or even below zero in these regions. Today in contrast, we see central bank interest rates that range from 4% in the euro zone to 5.5% in the US - a very sharp increase in a very short space of time, historically speaking.
US Fed Funds rate rises from 0.25% to 5.5% in record time
Source: Bloomberg
But the inflection point seems to have been reached. The UK surprisingly did not raise interest rates in the last week, rather maintaining its base rate at 5.25%.
Bank of England has followed the Fed, but has paused now at 5.25%
Source: Bank of England
Neither did the US, and while the ECB did raise European interest rates to 4%, this looks likely to be the last rise, no matter what central bankers communicate.
Why do I say that? Well, I have several reasons.
Slowing economies, slowing demand
Firstly, remember what central bankers are trying to achieve when they raise interest rates. They are trying to curb (above-target) inflation, but the way they achieve this is…
