One of the most important things we’re watching is the US10 year bond yield which fell well below 3% on Friday and is now trading at around 2.9%. This is well off the peak level in the mid 3% range. It implies growth expectations are falling. We’re not surprised.
The economy will break, each and every time central banks increase rates. It’s hard to see the RBA moving away from its tightening bias and the market is probably right in predicting a 50bpts rise tomorrow.
For us it’s not about what happens tomorrow, but what happens towards the end of the year. We’re of the view that rate rises will cap out, probably in 6 months, followed by a short and sharp recession that will act as a reset.
Bottom line: Rate rises are here for the next few months, but the outlook for future rate rises next year is becoming a little less certain.
We think the RBA will raise to a cash rate of around 2% before realising that inflation is no longer a diabolical threat and that growth expectations need to be supported by accomodative monetary policy.
Market commentary from Peter Esho, co-founder at Wealthi
