RE: Receding global Inflation20 Sep 2023 12:34
"I'd think we're nearly at the end from an interest rate hike viewpoint. I still think there will be one 25bps hike at the MPC meeting tomorrow and I'd think they will take a pause after this time. Inflation, both core and non-core, is still uncomfortably high and well above the MPC's 2% target and is much higher than the US for the MPC to take a pause at this time. An pause in November is well on the cards though.
I'm still not sure how this will help Matty Laddy though. He can't grow sales in an inflationary environment - will he be up to scratch when inflation's dropping? We wait with bated breath!!!"
It's fairly well reported at this point, but perhaps counter-intuitively, if you look at historic data, equities usually tank AFTER the pause or pivot, never or rarely during the hiking cycle itself. A quirk of the lag effects of corporate debt held at lower rates from before the cycle and corporate cash holdings earning newly higher rates, mean a lot of companies initially actually do well out of the hiking cycle, making more in interest from the cash they hold, than they're paying on debt servicing. The market is lulled into a false sense of security. That is, until debt maturation windows catch up, and the wider effects of rates hit their customers and earnings and it all comes crashing down at once.
It's possible people are going to be caught off guard with the market correction that is likely to accompany, or follow shortly thereafter, the peak of this cycle. Recessions almost invariably trail the pause, by on average ~8 months, but the pivot, when it comes, is usually much worse. The pivot is essentially an admission by the central banks that something broke and is invariably bad news of the markets.
Sign In
Follow the stocks
