Insights

Through October, data reports for the global economy showed stronger-than-expected growth in the United States and some stabilisation in China. Third quarter US GDP growth came in well ahead of expectations at 4.9%. Still, strong consumer spending growth was a positive feature. The sharp increase in inventories means that the headline growth somewhat overstates the underlying strength of the economy. Around 1.3 percentage points of growth came from the build-up inventories, which may reverse in subsequent months. Former investors’ worries that the US economy faces an imminent recession still seem far from the truth.

Astute investors following the US economy would find the current trend of robust growth and persistent inflation concerning. That economic dynamic has had the Federal Reserve appear worried, too. As we approach this week's FOMC meeting, it's widely anticipated that the Fed will keep the interest rates unchanged. Nevertheless, we anticipate the accompanying statement to subtly acknowledge the enduring strength in economic growth and inflation evident from recent data points.

In our latest presentation to a discerning group of private clients and investment professionals, we conducted a poll regarding the outlook for inflation in the United States over the next two years. The query posed was straightforward: Where will US inflation stand in two years? The results were telling, with only a mere 20% of the respondents envisioning a scenario where inflation hovers within the Federal Reserve's target range of 1% to 3%. In stark contrast, a resounding 80% of the participants foresaw inflation ranging from 3% to 5% or even surpassing the 5% mark.

The Middle East is at the centre of global geopolitics once again – and this time for some very unfortunate reasons. Whether the developments will have a bearing on the financial markets is something that only time will tell, but the profound human suffering that has affected so many lives will certainly affect our collective psyche. Our hopes and prayers are for an eventual de-escalation and the restoration of peace in the region.

In times such as these, investors need help in gauging the true value of the markets. For them, one of the toughest calls to take is estimating the fair value of the US 10-year government bond yield. In the past five years, the US 10-year government bond yield has ranged between as low as 0.51% and (very recently) as high as 4.8%. The task therefore is not easy.