Amidst a climate of heightened confidence, risk assets are rallying, underpinned by a broader improvement in global risk sentiment. Investors are increasingly optimistic that policymakers will orchestrate a soft landing in 2024, a sentiment that gains support from recent economic data releases.

US equities have staged a strong revival this month bouncing back to within 1% of their late July highs. A more benign macro outlook has been the primary catalyst for the bounce-back with recent evidence that the resilient US economy is cooling gradually.

Despite calls for structurally higher inflation, US headline CPI appears to be falling as fast as it went up. This should provide support for both fixed interest and equity markets over the coming year.

While a number of the world’s major central banks have recently hit the policy pause button (most notably the US Fed), the Reserve Bank of Australia lifted rates 25 basis points to 4.35% last week.

So far, 2023 is proving to be a year of 2 phases for global equity markets. Stocks generally rallied throughout the first 7 months of the year, despite bank turmoil weighing on markets in Q1, but this upward momentum has since morphed into a correction phase.

The September quarter’s above-consensus reading for both headline and underlying inflation materially increases the risk of a November rate hike next week, in our view. 

Global inflation pressures appear to be easing despite a surprisingly resilient US economy and rising concerns over the global oil price. As we detail in this report, a continued easing in inflation should (all things equal) be supportive for both equities and bonds.

While investors are intensely focused on the outlook for US economic growth and inflation, the strong revival from the US equity market over the past 12 months - alongside rising long-term interest rates - has thrown the spotlight back on global equity valuations.