Beware of recency bias, says Oreana’s CIO Isaac Poole. The US economy is slowing, and core inflation is trending lower. The Fed will slow the pace of rate hikes. Markets are anchored on recent historically high hikes, which Poole believes is an example of recency bias. A 0.25% hike is quite likely in December, followed by another 0.25% in February – the Fed may well pause for 6-12 months from then. Lots of Fedspeak has been swirling around this week, and it will therefore be important to gauge which way the wind is blowing. There have been signs and rumours that support the sentiment of China’s reopening. A re opening won’t be the end of zero-Covid, but it is providing a runway. It is being accompanied by credit support for the property sector. Volatility will remain elevated, particularly as international capital remains reluctant to invest. A recession can be avoided by the Fed, and Poole believes that China is closer to reopening than markets anticipate. Government bonds have rallied hard since then, but remain a key downside protection for investor portfolios.
(Source: Ausbiz)

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