Market conditions and most economies have proven surprisingly resilient coming into 2024. Corporate profitability has remained largely intact outside a few sectors, labor markets are still strong, and financial markets are providing an opportunistic window for capital raising. But risks are still lurking, which could derail our base case of a soft landing.

What is happening in the US?

The risks to US growth remain high. It is now almost two years since the Fed started to raise rates. This has been one of the most aggressive tightening cycles in history, especially if the Fed Funds Rate is measured in real terms. It is hard to imagine that such tight policy does not eventually cause recession in the US too; the question is simply on the timing.

Recent reads on sentiment are showing a deeply pessimistic consumer, particularly following the further November rate increase by the RBA. Whilst sentiment is low and consumer spending is falling, the supportive backbone has been employment. The Australian economy is showing resilience considering the extent of rate increases. Despite labour market surveys always being retrospective, an unemployment rate of only 3.7% has been the support but must be closely monitored.

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