Interest rates

Continuous disclosure: what drives interest rates up … and why the markets don’t like it

Business

A forex trader watches monitors in the foreign exchange trading floor at KEB Hana Bank headquarters in Seoul, South Korea. Photo / AP

Interest rates are on the rise and are expected to continue to rise until 2022.

But nothing is ever easy in the world of finance and there are potential risks that could see rates rise more slowly or even stop them altogether.

In the latest episode of the Continuous Disclosure investment podcast, Liam Dann speaks with Fisher Funds Senior Portfolio Manager and Head of Fixed Income David McLeish about the highly uncertain interest rate outlook for the year. future.

In this episode, we also take a look at some of the major risks to watch out for as the Christmas holidays approach, specifically the spread of the Omicron Covid variant and the slow-motion crash of Chinese real estate giant Evergrande.

Overall, despite these immediate threats to market sentiment, there was still a lot of optimism about the outlook for growth and inflation in 2022, McLeish said.

“Which, as we all know, determines interest rates. “

When it comes to the global trend, all eyes are on the U.S. Federal Reserve as it tries to cut quantitative easing and raise rates in 2022.

The stock market can be a mechanism to stop rising rates, because if investors get scared and sell, causing a correction or crash, it can slow the economy.

Rising rates, by design, are creating headwinds for the economy and there was a risk we would see that here, McLeish said.

In New Zealand, interest rates rose faster and earlier than in most other parts of the world, he said.

David McLeish, Head of Fixed Income at Fisher Funds.  Photo / Thomas Pryor
David McLeish, Head of Fixed Income at Fisher Funds. Photo / Thomas Pryor

Rising interest rates are taking money out of the pockets of consumers, households and businesses,” he said.

“At a time when inflation is already reducing our purchasing power, we are also feeling a pinch in our pockets because mortgage rates have gone up. It’s almost a double whammy.

The sharemarket sniffs that, McLeish said.

Because stock market investors look to the future, they anticipate reduced consumption.

“What does reduced consumption mean? It means less revenue for the companies, so I have to re-evaluate these investments downwards. “

Continuous Disclosure is a commercial podcast of the NZ Herald.
Continuous Disclosure is a commercial podcast of the NZ Herald.

Continuous disclosure is available at IHeartRadio, Spotify, Apple podcasts, or wherever you get your podcasts. New episodes come out every other Wednesday.

You can find more New Zealand Herald podcasts at nzherald.co.nz/podcasts Or on IHeartRadio.