Macro Articles

You may remember when the yen carry trade revealed itself as the catalyst for August’s sharp selloff across global markets. The knock-on effects of its unwinding surprised more than a handful of investors at the time. The sobering news is that the yen carry trade continues to linger and is arguably the market’s biggest risk right now. It may well be prudent for investors to prepare for a repeat of August’s volatility.

It’s not often that the Fed cuts rates by 50 basis points in one move. It surely indicates the Fed is worried about the state of the world’s largest economy. If that’s the case, global investors, including in Australia, should sit up and take note. The key question at this juncture is: does the Fed’s urgent action indicate a US recession is looming?

Remember how you felt about yield when interest rates were at historic lows? In those days when yield was scarce, investors placed a higher value on it, and it was of greater importance to investment valuations. Then everything changed when the developed world’s central bankers raised rates at the fastest pace in history. Yield suddenly became more abundant, and the market took some time to adapt to this altered market environment. In short, it was bad news for yield-focused investors who had to watch their capital values fall as yields rose.

It’s been a wild ride for investors of late with volatility returning to global markets catalysed by the unwinding of the Yen carry trade. Whilst intermittent volatility shouldn’t surprise anyone, it has surprised the investors who’d grown to believe that equity markets gradually increase in value forever. What investors do next will arguably define whether 2024 is a good or a bad year for their portfolios…

Global markets have long been fixated on what’s coming next from the world’s central bankers, particularly the Fed. But some investors may be unaware of a central bank strategy would could change the rules of the investing game if the Fed were to use it.

It’s been a wild ride in recent months for Fed rate expectations. Back in January this year, a buoyant US market expected seven Fed rate cuts by the end of 2024. By March, the market had sobered up a little and expectations had fallen to three rate cuts for the year. But now markets are only expecting one Fed rate cut in 2024. Interestingly, despite pricing out a full six rate cuts since the start of the year, the S&P 500 is up 15% year to date.

The war in Ukraine signalled a step-change in global geopolitical risk which was further escalated by events in the Gaza Strip. Whilst the investment world remains hopeful (and possibly correct) that global peace will resume after these events, history is less comforting. The risk of a third world war has rarely been higher, and investors have rarely been less prepared for it. Being ready for the unthinkable may be more prudent than you currently believe.

We’re entering unchartered territory with the current global bond bear market both in terms of duration and magnitude. For an asset class which had previously been incorporated into the vast majority of portfolios primarily for its defensive attributes, this bear market has raised serious questions about how investors should view bonds looking forward.

Worryingly, Australian economic growth decreased each quarter of 2023 so the economy has been in deceleration mode for some time now. The economy only grew 0.2% in Q4 2023, and 1.5% for 2023. Given the population has been growing faster than that, Australia has been in a per capita recession for some time now. In fact, this is the slowest rate of Australian economic growth since way back in the 1990s (excluding the pandemic and the GST introduction). In case you’re wondering why the Aussie economy is languishing while the global economy continues to grow at a decent clip, we take a look under the hood for a guide as to what’s coming next…

Being aware of major investment themes at play often makes the difference between investing with a tailwind behind you versus a headwind in front of you. Needless to say, investing with the benefit of structural tailwinds is a much easier pathway to investment success.

Have you ever thought you were aware of all the potential market-moving macro developments, only to be surprised by a left-field occurrence which you didn’t realise was a game-changer for the global and Australian markets?

What a year 2024 is turning into for global investment markets. Long term trends and playbooks are being turned on their heads on a weekly basis. It’s emerging as a year when it pays to have a long term investment plan to follow while the noise gets louder and adds to the market’s confusion. It’s also a year in which it’s important to understand why global markets are surprising so many investors to ensure you remain unsurprised by what’s happening, and thus comfortable sticking with your plan.