What happens next, though, remains a subject of heated debate and contradictions, specifically with inflation and economic growth. It does not help that the slew of economic data has been decidedly mixed, adding to the confusion.
At the start of the year, we said that global capital markets are at a crossroads. And things could go either way. Five months in, there appears to be little improvement in terms of clarity on the macroeconomic outlook. Indeed, if anything, it is cloudier and investor positionings — both the bearish and bullish — may have become even more divisive and entrenched. It does seem that many are now investing based on convictions rather than on facts and evidence — oftentimes, the same set of data can be interpreted in such a way as to support their own contrasting expectations.
The closest to a consensus right now, we think, is that the current interest rate-hike cycle is nearing the end. The US Federal Reserve has reduced the quantum of its hikes to 25 basis points this year, from 75-basis-point increases (four times from June to November 2022). And its indicative terminal range (5% to 5.25%) suggests just one more 25-basis-point increase for the rest of this year. Other central banks, including in South Korea, Australia, Indonesia, India, Singapore and Malaysia, have stopped monetary policy tightening for now.
