Insights

Market take

Weekly video_20230206

Alex Brazier

Opening frame: What’s driving markets? Market take

Camera frame

Inflation is falling thanks to lower energy and goods prices.

And last week, major central banks seemed to signal that they are now entering phase two of their rate hike cycles. 

1: Phase two in the inflation fight

Phase one was about raising rates quickly and sounding as if they’d do whatever it took to bring down inflation.

We saw them pausing and shifting their message to be more nuanced in a second phase once the damage of rate hikes came into view. 

2: Mixed messages from central banks

Last week brought some mixed messages from central banks.

That could be a subtle sign that they are stumbling into that second phase a little sooner than expected.

We believe a pause in rate hikes is now nearing. And that reinforces our view of mild recessions this year.

3: Labor markets to keep inflation high

Labor markets will be key to this.

We see worker shortages in the U.S. and Europe keeping wage growth and inflation high, even amid weak economic growth.

Inflation is set to linger for longer above central banks’ 2% targets. 

Outro frame: Here’s our Market take 

And although no longer rising sharply, we expect interest rates to stay higher for longer in this next phase for monetary policy.

That’s why we like high-quality credit and short-term government bonds for income.

Closing frame: Read details: 

www.blackrock.com/weekly-commentary

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