Markets are saying the UK - and for that matter the US and mainland Europe - have all hit peak interest rates.
That’s the view of the senior investment analyst at business consultancy Hargreaves Lansdown, who says the US Federal Reserve and Bank of England held rates again at the start of November and that both the UK and US reported lower-than-expected inflation levels in the past two weeks.
“We appear to have hit peak rates. At least, that’s what markets are telling us” claims Hal Cook.
“The US 10-year Treasury yield peaked at around five per cent in mid-October and has been on a bumpy-but-downward trajectory ever since. It was 4.48 per cent on Friday. This is a big shift in sentiment. The 10-year UK gilt yield is also falling, having been at around 4.7 per cent in October, it’s now at 4.28 per cent” he continues.
“Both the Fed and the Bank of England held interest rates again at the start of November. Inflation prints in both countries have come in lower than expected too, and not just at the overall level, with core and services inflation both falling in October. Add in the announcement from the US Treasury that their future bond auctions will see lower levels of government bond issuance than was expected and you have a happy bond market.
“At the same time, we have seen stock markets go on a bit of a tear in November. All of the main developed market regions have posted meaningful gains in share prices this month. Even China has posted positive returns, having fallen dramatically over the three months to end of October. The FTSE 250 in particular is rallying hard, up 9.4 per cent in the past month.”
But he says caution is the byword, and warns that markets may just be getting ahead of themselves.
He concludes: “It wouldn’t take much for this ‘everything rally’ to reverse: higher than expected unemployment or sticky inflation could knock things for example. It would not be a surprise for there to be some data point over the next month or two which sends markets back down again and yields tick up. The consensus view, however, is that we’ve hit peak rates, and I broadly agree - even if there may be some more volatility from here.”
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