Central banks around the globe continued to raise interest rates in the third quarter of this year. Especially in the US, news from the economic front still indicates an astonishingly subdued response to record-high interest rate levels, with consumer spending in particular remaining solid. A large amount of pandemic-era savings are now being consumed, but these are unlikely to last for too much longer. US credit card debt now stands at over USD 1,031,000,000,000 and the average interest rate on it at 22% (and the trend is up)! Time and time again, we have pointed out that there is a lag of 12 to 18 months before massive interest rate rises impact on economic performance. It is remarkable, therefore, that many economic auguries still expect only a mild economic downturn.

Looking back, we have to acknowledge that the situation in all global trouble spots continues to deteriorate. The unexpected escalation in Israel is now likely to propel the oil price higher and so does not bode well for the winter that is soon to come. Following the liquidity crisis in the spring and especially in the US banking system, the waters have calmed somewhat. But let’s not deceive ourselves, as the risks have continued to rise, especially on commercial property loans.

The financial markets have weakened in recent weeks. The main reason for the more negative sentiment are the continuing sharp rises in interest rates and the central banks vehemently saying that they will probably have to keep interest rates high for a “long” time so that inflation figures return to target. The steady upward trend in the US dollar (except against the Swiss franc) is probably the biggest surprise on the financial markets this year. This is despite record-high US debt in an environment of rising interest rates, a burgeoning budget deficit, a near-shutdown of the US administration and the everclearer voices from the eastern hemisphere on the subject of replacing the US dollar as the world’s reserve and trading currency.