- Interest rate outlook still defines investor and management approaches
- Tourism and retail looking strong despite economic worries
We’ve just exited the main full-year reporting season and it’s clear that the cumulative impact of 14 successive rate hikes will linger for a while longer. Indeed, it appears that central bankers could be forced to delay initial rate cuts until real wage growth moderates to a degree. That seems a tad unfair where UK workers are concerned, given that domestic wage growth lagged many of our principal trading partners in the aftermath of the pandemic. But the Monetary Policy Committee (MPC) seems determined to err on the side of caution. This could cast a pall over earnings and related income prospects, although the preliminary releases indicate that dividend growth from the FTSE top-tier constituents will probably continue to outstrip the mid-caps in 2024.
Across the pond, stronger-than-expected non-farm payrolls data has scaled back expectations that the US Federal Reserve will cut interest rates as early as June. Traders had been pricing in a 25 basis point reduction, although even that modest scenario is receding into the distance due to stubborn US inflation. Nonetheless, the mere expectation over interest rate cuts this year has reduced the difference between the yield on corporate bonds and those of their equivalent US Treasuries. So we have witnessed a marked step-up in the issuance of corporate debt, especially among companies that were able to push their refinancing commitments back.