Why there is no credit crunch coming in 2024

2024-02-05

While Signal or Noise was away on its summer break, the bulls were certainly out in force. The Santa Rally which dominated the end of 2023 has been spurred on by an even bigger anticipation for rate cuts. The RBA was not tipped to cut rates at all just six months ago. Now, thanks to an inflation print that outshone almost all expectations, the Australian rates curve has two cuts priced in by the end of 2024. And as if on cue, the ASX 200 hit an all-time high. And until the Federal...

While Signal or Noise was away on its summer break, the bulls were certainly out in force.

The Santa Rally which dominated the end of 2023 has been spurred on by an even bigger anticipation for rate cuts. The RBA was not tipped to cut rates at all just six months ago. Now, thanks to an inflation print that outshone almost all expectations, the Australian rates curve has two cuts priced in by the end of 2024. And as if on cue, the ASX 200 hit an all-time high.

And until the Federal Reserve's hawkish press conference last week, there were as many as six rate cuts priced into the US curve. Even before the Fed's meeting, the S&P 500 hit its first record close in two years. The anticipation for cuts led to the rally which loosened financial conditions around the world. Everything rallied - from bonds to equities and especially credit where one index of IG and High Yield asset values suggests that more than US$1 trillion in value has been added just since the October 2023 low.

So is this the Goldilocks setup for a vintage year in investing? To find out, Signal or Noise is back for the first show of 2024.

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