The fear stalking global equity markets is that inflation will remain elevated, even as global growth splutters, leaving central banks unable to ride to the rescue.
In the past fortnight investors have become increasingly hopeful that, after the brutal losses in the first half, global markets could be finally bottoming out.
. Households typically reduce their spending when the value of their main assets – the family home – declines.Investors are hoping that weaker consumer spending, combined with falling commodity prices, will dampen inflationary pressures, which means that central banks won’t have to tighten as aggressively as feared.
This would trigger a renewed bout of heavy selling in global equity markets by disappointed investors.Analysts believe there are two key reasons why central bankers will find the inflation fight more difficult than in the past. Similarly, the combination of soaring commodity prices and a pick-up in economic activity – which boosted corporate tax receipts and reduced welfare payments – means that the Australian budget deficit is still likely to end up atThe Albanese government is trying to find savings to offset its planned spending initiatives in areas such as childcare and tertiary education.
In other words, if governments leave it up to the central banks to do the heavy lifting to control inflation, it’s likely that they’ll have to keep hiking interest rates. And that could see interest rates rise far more sharply than the market is anticipating.Meanwhile, it’s likely that Russia’s invasion of Ukraine, along with escalating frictions with China, will accelerate the retreat from globalisation.
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