Markets are approaching year end in confident mood, anticipating interest rate cuts in the first half of next year. Despite western central banks’ repetition of the ‘higher for longer’ mantra, hopes are rising over the timing of the first cut and how quickly rates will then fall.

Inflation surprised on the downside. US inflation fell to 3.2% in October while early estimates showed eurozone inflation declined to 2.4% in November. UK inflation, recently stickier than most, slowed sharply to 4.6% in October, while the Chinese economy fell back into deflation with prices falling 0.2% year on year.

The latest financial market strength has been fuelled by a growing belief that major economies could enjoy a soft landing. What does this mean? In essence, it is the view that they will avoid any predicted recession, instead gliding gently into a period of lower growth with fewer inflationary pressures.

Equity and bond markets enjoyed a surprisingly sharp rally. Why now? It’s all to do with the perception of softer messaging from the US Federal Reserve (Fed). Markets have taken the ‘higher for longer’ interest rate plateau on board and are looking for the next move in rates to be downwards.

During September 2023, Danish pharmaceutical company Novo Nordisk overtook Frances’s luxury conglomerate LVMH to become Europe’s largest company by market capitalisation. This was the result of a tripling in Novo Nordisk’s share price over the past three years, with the company’s value matching Denmark’s 2021 GDP.

The 2018 bestseller ‘Factfulness’ by Hans Rosling seeks to counterbalance some of the pessimism about the state of the world. It provides numerous examples of how global trends are continuing to improve.

Markets are hopeful that the threat of recession has faded, giving rise to a risk on rally. Indeed growth forecasts for the major economies are seeing consistent upward revisions.

US third quarter GDP data released at October month-end rose by 4.9%, its fastest rate of growth since Q4 2021. Domestic consumer spending was supportive, reflecting healthy wage growth.

Tensions mounted in the Middle East, sparking fears of a broader conflict in the region. Financial markets responded, with equity markets dogged by uncertainty, while gold performed strongly.