Getting older is not a problem, you just have to live long enough Groucho Marx

The FTSE 100 had a better week, recovering most of the previous week's losses. The S&P 500 marked time, stocks in Europe made small gains. The much-anticipated Federal Reserve meeting had a negligible impact on capital markets. Yields on the 2 and 10-year bonds moved higher by 6 basis points, yields on the 2 year now stand 1.46%, 22 basis points higher than at the start of the year.  Conversely, the 10 year is almost 20 basis points lower from the start of the year. A narrowing gap, as we mentioned before, between the shorter dated and longer-dated government debt indicates the bond market remains wary of future economic growth prospects than the equity market seems to believe in.

Sterling gave back some ground towards the end of the week, possibly some profit taking after the strong run of late. The pound at one stage in the week trading above 1.36 to the US dollar. The pound did not react much to Theresa May’s Brexit speech in Florence, or the downgrade by Moody’s of the countries credit rating. As much as the government will not be pleased to see this downgrade, Moody’s are following a similar move by other rating agencies previously. Ten-year gilt yields likewise had little reaction to either event, after the sharp rise in yields the week before.

Complacency or confidence has returned if the options market is any measure as the Vix index once again trades back at the lows of the year. Trying to identify quite where investment sentiment stands, currently, data seems inconclusive. Barron’s consensus bullish sentiment currently reads 70%, not necessarily in euphoria territory but certainly optimistic. This reading has not changed much in the past couple of weeks. The AAII retail investor survey suggests retail investors have become more optimistic recently, that equity prices will rise in the coming months. The TIM’s indicator, a collection of all the actionable trade ideas sent from the sell side to the buy side, is more neutral, as is the Citi euphoria/panic model.

Looking now to the week ahead, one can’t rule out tensions between America and North Korea impacting capital markets, however so far it has had negligible impact.  Angela Merkel retained her post as she is reelected for a fourth term. However, all was not rosy in the CDU-CSU garden as the extreme right AfD took 13% of the vote. Another example of the rise taking place around the world of populist politics. Next week the Catalan region of Spain hope to hold a vote of independence, from the rest of Europe.

There is always something from America for the world's economists to dissect and this week it will be the Augusts Durable Goods orders on Wednesday. On Thursday the final reading for the second quarter GDP, and on Friday inflation data in the form of the Personal Consumption Expenditure Price Index.

Posted on September 24, 2017 .