Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

GOLDILOCKS is back and investors are welcoming her with open arms. Last week’s string of economic data releases in the US has convinced the markets that the economy is heading for a not-too-hot, not-too-cold ‘soft landing’. Reversing inflation without breaking the economy is a big ask of any central bank - but increasingly it looks like the Federal Reserve might have pulled it off.

The not-quite-so-hot jobs market

Last week’s economic data were just what investors wanted to hear. First, much lower than expected job openings suggested that the previously red-hot labour market in America was starting to cool. Then we saw slowing but still positive GDP growth. Finally, non-farm payroll data on Friday showed modestly better than forecast job creation in August. All in all, it painted a picture of a US economy that’s gliding down gently to a soft-landing next year.

Markets welcomed the news. Bond yields settled a little bit lower (pushing prices higher) as the odds on a no-change rate-setting meeting this month rose to more than 90%. At the same time, the stock market registered another strong week, with the S&P500 up 2.5% and the interest-rate sensitive Nasdaq 3.2% higher. Investors are starting to price in the first interest rate cuts as soon as next spring.

Markets are still climbing the wall of worry, rising despite plenty of things to be concerned about. Investors have taken in their stride the expectation that growth will be a bit lower next year because they are choosing instead to focus on the glass half full version of events. A bit less growth means no more rate rises. That’s cat nip for the markets.

No China Crisis

On the other side of the world, too, investors are starting to worry less. The failure of the Chinese economy to bounce back from Covid as quickly as hoped, has provided a stiff headwind for shares in Shanghai and Shenzhen. Investors have been voting with their feet and the CSI 300 index has underperformed badly over the summer.

But the authorities' previously firm resolve not to shower the Chinese economy with stimulus is wobbling. Party leaders have taken a long hard look at youth unemployment over 20% and decided that the risk of re-inflating a property bubble is the lesser of two evils when compared with the danger of a prolonged property slump. This weekend saw a new set of policies unveiled to reduce down-payments and cut interest rates on home loans.

No longer the sick man of Europe

Even here at home, where house prices are tumbling at the fastest rate since 2009, it’s not all gloom and doom on the economy. The Office for National Statistics this week changed the whole post-pandemic narrative for the UK economy at the stroke of a pen. Far from being the weakest link in Europe’s post-Covid recovery, the UK actually regained its pre-pandemic size by the end of 2021, according to newly revised data.

That changes the story completely. We are no longer the only major country not to have recovered all the ground lost in early 2020 during the first few months of Covid. And we now look no worse than our major European rivals like France and Germany. Does it make much difference? In reality, Britain is still coping with some self-inflicted Brexit-shaped wounds. But things are not as bad as we thought. And in investment, that can be enough. Especially when, as is the case with the UK stock market, expectations are starting from a very low base.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates.  Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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