Sources: Citi Research, Bloomberg, ANZ Wealth
For economic indicators, the current US unemployment rate of 4.3 per cent is flashing red, suggesting end-of-cycle risks from high inflation and tight monetary policy.
But our lending standards indicator (a high reading is tight, low is easy) suggests we are far from this point with banks supportive of the expansion and markets. Plus, inflation remains below 2 per cent and not threatening to go much higher anytime soon.
While the current investment and economic cycle has been lengthy, we don’t see enough typical signals yet to suggest an end is imminent.
Valuations still have further to go if history is to repeat, sentiment is far from exuberant and corporate behaviour is restrained. However, there are risks beginning to emerge as US corporate debt has risen and low US unemployment flags rising inflationary risks.
But every cycle is different and so we need to keep an eye on what may be different this time. In terms of financial and economic risks, at the top of our list is China due to its increased indebtedness since the GFC.
With the increased importance of emerging markets, including China over the past decade, this trend may well be the source of the next major market shock - although there are no signs of this at present.
Mark Rider is Chief Investment Officer at ANZ Wealth