RUN!

Market report

• Economic data continue to paint a mixed picture of the near-term outlook for the global economy
• The Bank of England raised interest rates by 50bps – uncertainty about the meetings ahead should remain high
• Some thoughts on stagflation…

CIO view

This last week provided (yet) another reminder to stay humble on the short-term path of interest rates. Remember – a little over a year ago, much of the forecasting community (and indeed the Central Banks themselves) were assuming 2022 would be a year of further monetary nurture. Still reeling from the gut punches of the pandemic, the world’s major economies were expected to require basement level interest rates for some time yet. Next year, or the year after even.

Inflation data changed all that of course. So much so, that in much of the developed world, monetary policy is already at/or around levels that are estimated to be restrictive – a point at which we can start to say that the brakes are on, rather than just the accelerator lifted. These ‘choke points’ are of course not observable and may well have changed substantially in the last few years (up or down).

Further complicating the picture for central bankers (and all of us frankly) is the still disfiguring influence of the pandemic. From the unwinding of past supply chain snarl ups (as well as some fresh knotting) to the pent-up splurge on services in much of the developed world, COVID-19 is still doing much to obscure underlying trends in global growth and inflation. We are not driving the same car as we were back in 2019 (to return to my favourite bad analogy for the global economy). The engine is different, primarily because we are. We may not yet see how durably our incentives and appetites have changed from our 2019 selves for many quarters yet. In fact, if past is prologue, these changes may only become obvious with the benefit of decades/centuries of hindsight.

However, ignore those who see only inexorable decline ahead. There is plenty to worry about at this moment in time of course - War, disease, famine, and pestilence continue to menace. Stagflation, the most oxymoronic of economic afflictions, remains a real possibility. Large parts of the developed world electorate continue to reel - bludgeoned by the cost-of-living crisis and baited by tales of the ‘woke-nado’ apparently barrelling through our societies. The world is big enough to always be able to provide enough bad news to fill a 24-hour news feed, that will likely always be the case. That may even be truer of the last couple of years. However, does the apparent wreckage of the present reliably tell us anything about where we are going?

It is very easy to get wrapped up in the news of the moment. The grimmer the better in terms of our likelihood to pick it up/click on it and have a read. However, the perspective of history warns against the instinct to extrapolate pessimistically. These moments of unrest and difficulty have not tended to be followed with more of the same, but worse, inexorably. Quite often the reverse has been true. Moments of societal unrest and discord can be important in laying the foundations for future progress (often corrective) as we have pointed out before, feeding off and helping to shape advances in the technological context. The same doesn’t have to be true this time of course, however the caution here is against assuming the worst and investing (or not) for the long term accordingly.

We are not in the 1970s. Most of the similarities are more superficial than admitted by those aiming to terrify. However, we may be heading into a period where the similarities may multiply. The world economy is slowing (quite a bit more slowly than some forecast on the evidence of this week’s data) but with more to come in our view. It is certainly conceivable that inflation could continue to stick more than expected too. However, the next 6 months may tell us very little of what lies beyond, which is what you are targeting with your multi asset class investments. If the interregnum between ICT and AI finally ends, you are going to want to have your investment net ready to catch the rewards. That is what our teams of specialists devote their waking hours to.?

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*This article is for information purposes only. It is not intended as a product offer or investment advice