Global stock markets have experienced a downturn recently due to ongoing concerns about high bond yields, the conflict in Israel, and mixed U.S. earnings results. Markets such as the U.S., Eurozone, and Japan have faced declines in shares, with shares in the U.S. alone falling by 2.5% over the week.
In contrast, Chinese shares rose by 1.5% following the announcement of policy stimulus. This period has seen a 10% drop in U.S. and global shares from their July peaks, with Australian shares falling just over 8%. With bond yields continuing to rise and a high risk of recession looming, share markets may continue to fluctuate.
Despite these risks, shares may improve by year end for several reasons, including positive seasonality over the next few months, the potential easing of central banks next year as inflation continues to fall, and any likely recession being somewhat mild. As such, a 12-month view on shares remains optimistic.
The European Central Bank and the Bank of Canada both kept their rates on hold, though neither are currently close to implementing rate cuts. Similarly, Australia may also see another rate hike due to higher than expected inflation.
However, the risk of a deep recession next year increases as central banks keep tightening monetary policy. Consequently, central banks should remain cautious before making further adjustments to their policies.
Meanwhile, the U.S. Federal Reserve is expected to maintain its steady position in the coming week, with non-farm payroll, unemployment, and wages growth numbers predicted to remain stable.
Both Eurozone GDP and inflation figures are expected to be weak for October. In contrast, the Bank of Japan may relax its yield curve control and increase its growth and inflation forecasts for the near future.
Looking forward, shares are anticipated to return to better performance, particularly if any recession that does develop remains mild.
