A currency trader watches monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea. Photo / AP
A currency trader watches monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea. Photo / AP
Interest rates are on the rise and forecast to keep rising through 2022.
But nothing is ever simple in the world of finance and there are potential risks that could see rates rise more slowly or even stop them in their tracks.
In the latest episode of the investment podcast Continuous Disclosure Liam Dann talks to Fisher Funds senior portfolio manager and head of fixed income David McLeish about the highly uncertain outlook for interest rates in the year ahead.
In this episode we also take a look at some of the headline-grabbing risks to keep an eye on as we head into the Christmas break - specifically the spread of the Omicron Covid variant and the slow motion crash of Chinese property giant Evergrande.
Broadly though, despite those 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, drives interest rates."
In terms of the global trend all eyes are in the US Federal Reserve as it attempts to pare back on Quantitative Easing and lift rates in 2022.
The sharemarket can be a mechanism for stopping rates rising because if investors get spooked and sell off causing a correction or crash it can slow the economy.
Rising rates, by design, create headwinds for the economy and there was a risk we would see that in here, McLeish said.
In New Zealand interest rates were rising faster and earlier than most other parts of the world, he said.
David McLeish, Head of Fixed Income at Fisher Funds. Photo / Thomas Pryor
"Rising interest rates take money out of the pockets of consumers, of households and businesses," he said.
"At a time right now where inflation is already reducing our purchasing power we're also feeling the pinch in our pockets because mortgage rates have gone up. It's almost a bit of a double whammy."
The sharemarket sniffs that out, McLeish said.
Because sharemarket investors look forward they anticipate reduced consumption.
"What does reduced consumption mean? It means less earnings for the companies therefore I have to re-price those investments lower."
Continuous Disclosure is a NZ Herald business podcast.
Continuous Disclosure is available on IHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every second Wednesday.
