LONDON : From stocks to government bonds, markets have had one of their best starts to the year in decades but whether the run lasts depends on a Goldilocks scenario of inflation easing, economic growth holding up and borrowing costs falling.
At the other end of the spectrum, ultra-safe U.S. Treasuries and German Bunds have put in some of their strongest January performances since 2008, according to Datastream calculations. That followed tentative signs inflation has peaked and that central banks will soon pause rate hikes, with markets now pricing a just-right outcome of borrowing costs getting cheaper, while the world pulls back from the brink of recession.
Fahad Kamal, chief investment officer at Kleinwort Hambros, cautioned that January's cross-asset rally mainly signaled that investors were re-adjusting after an overly gloomy 2022, when the global stock indexes dropped by a fifth and bond returns saw their worst year for decades. U.S. consumer prices fell for the first time in more than 2-1/2 years in December, to 6.5 per cent. Euro zone inflation has also slowed, although data on Monday showed Spain's consumer prices rose in January for the first time in six months.
"I wouldn't say all green lights are flashing," said Michele Morganti, senior equity strategist at Generali Investments,"but the outlook is fundamentally better than it was a few months ago". And if they become less worried about recession and more determined to tamp inflation that remains vastly above target levels,"monetary policy will remain restrictive", Acorn's Dias said.