A little calm after the storm.

On Thursday the Bank of England released the minutes from the last rate setting meeting, the vote remained 8-1 in favour of keeping rates where they are. Ian McCafferty once again voting for a rise.  Mr. McCafferty continues to be one of a few currently fearful of inflationary pressures. The rest of the world appears more concerned with the possibility of deflationary influences.

The Federal Reserve likewise released the minutes from their last meeting. This was the meeting that was expected to ratify the first interest rate hike in eight years. The minutes revealed the committee believed the economy was close to warranting an interest rate hike in September, but ultimately decided it was not prudent at this time. The committee still believe it will be appropriate to raise rates by the “end of the year’. We shall see, in common with ourselves the bond market continues to suggest otherwise.

Commodity stocks and commodity prices have rebounded this week, possibly helped by the latest IMF economic report. Despite a generally downbeat report on the outlook, particularly with regard to the emerging markets, the IMF’s outlook for the Chinese economy remained unchanged from their expectations earlier in the year. A senior Chinese bank official also tried to play down concerns on China’s economic slowdown. The official went on to add that he believes Chinese imports for raw materials will grow steadily in the future.

We have highlighted how we believe the performance of equity markets, into the year end, may be influenced by the upcoming earnings season. Late on Thursday Alcoa reported third quarter earnings after the market close. The earnings report was not an encouraging start as the company failed to meet lowered analyst expectations. Alcoa are considered a bell weather of the US economy as the company has exposure to a broad selection of industries. On this occasion investors will hope Alcoa will be the exception not the rule for the third quarter. 

The past three months has seen volatile movements in equity prices, these periods of volatility unnerve everyone. As we have pointed out before, volatility is sadly a price one pays for being invested in an asset class that over the long term has delivered higher returns. The past week has seen equity prices stabilise, the fear gauge in the form of the Vix has fallen. This has meant equity markets have recovered over 5% from the lows of mid September. Despite this rally fears of a global recession next year remain. Deflation is something central bankers will want to avoid at all costs. This should mean central bankers at their monthly meetings should continue to focus on stimulating growth not slowing it. 

Posted on October 9, 2015 .