The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.
Anything in excess can be damaging. The United Kingdom’s (UK) sweeping tax cuts and spending plans to spur the economy triggered a rout in the country’s bond market. The country’s central bank, the Bank of England, carried out emergency bond purchases to control spiralling yields. These developments stoked bond yields across the globe, adding to the challenges of central banks. The 10-year US treasury yields are at the highest level in a decade.
Global agencies, including the International Monetary Fund and Moody’s, warned the UK government about the adverse ramifications of unfunded tax cuts on the country's finances. Many fear the UK’s measures can be inflationary and work against the central bank’s monetary policy tightening.
Yet governments see limited options to revive their economies. “Governments and central banks are caught between a rock and a hard place. Either they fight inflation and risk a recession, or they pivot and allow inflation,” writes Manas Chakravarty in today’s edition.
The directionally different moves by the governments and the central banks place the global economy in a tight spot. Finance costs are rising and early indicators such as purchasing managers’ indices are pointing to growth moderation.
“Global macro performance over the next few quarters is increasingly a one-way bet. Financial conditions are tightening as central banks raise rates quickly, foreshadowing slower growth,” S&P Global Ratings said in a note.
Amidst this, global equities, including the Indian markets, are seeking a rebound of sorts. But as market expert Ajay Bagga sums it up, the institutional and individual investor positioning is quite bearish. Fund managers and banks now prefer to hold cash or higher quality investments, rather than lend to risky firms. “We are looking at a Global Winter of Discontent and the sentiment remains decidedly risk off,” writes Bagga in this piece. Do read.
What else are we reading?
‘Volatility vortex’ slams into $24tn US government bond market (republished from the FT)
R Sree RamMoneycontrol Pro