Autumn Economic Update 2024
Diversified investors had more reasons to smile as the markets began this year exactly as they left off last year - with another strong gain by most international share markets.
In the absence of any major new economic or geopolitical shocks, investment sentiment continued to be closely linked to changes in the inflation and interest rate landscape. On that front, the first quarter of 2024 saw another discernible shift in inflation and interest rate expectations.
Initially, markets were anticipating central banks would act relatively quickly to begin lowering interest rates this year. However, these expectations were gradually scaled back. Despite indications of inflationary pressures generally easing, a stubborn inflation reading in the US tempered the US Federal Reserve’s enthusiasm for interest rate cuts.
With inflation remaining a primary concern globally, the European Central Bank, the Bank of England, and the US Federal Reserve all proceeded with greater caution during the quarter. All were very careful to avoid making premature declarations of victory over inflation. At the same time, the Bank of Japan increased interest rates for the first time in 17 years, signalling an end to their negative interest rate settings.
Meanwhile, global economic activity was on the upswing. The US economy continued to outperform expectations, buoyed by sustained consumer spending. While the eurozone's progress was slower, there were reasons for optimism, with manufacturing showing signs of a revival.
As the quarter progressed, government bond yields adjusted in response to shifting market sentiment. Most 10-year government bond yields increased over the quarter which reduced the returns from most sovereign bond markets.