Equity markets, no matter how long you study them, never quite seem to follow a totally logical path. The old saying goes equity markets follow the path that causes the most pain. The leading indexes of Europe and the US are back to the top end of recent trading ranges, despite the increase in geopolitical risks. The downing of a Russian jet by the Turkish caused a few ripples but prices bounced back in short order. On other occasions markets can react to what on the face of it is a far smaller occurrence.
George Osborne’s autumn statement caused a lot of news headlines, most notably the Office for Budget Responsibility finding £27bn out of what feels like thin air. This discovery helped George Osborne avoid politically difficult decisions. The OBR made no bones about the fact that they place a 50% chance of the numbers being right, George Osborne seemed to base his budget on the belief they are 100% correct. It seems odd to have avoided difficult decisions at the start of a five-year term, leaving the possibility of facing them closer to an election. Facing them now may have left him the opportunity to loosen the purse strings closer to the election. Time will tell whether some short term political gain will be hit by some greater pain later. Either that or he could be forced to abandon his efforts to balance the books by 2020.
Equity market sentiment may have been aided this week from the release of US macro data. For choice most of the data came in line with expectations, and occasionally beating them, for example durable goods orders for the month of October. The jobs data remains the focus for the Federal Reserve when it comes to basing their decisions on when to move on rates. The employment data is given a lot of focus and is often quoted as the Fed’s lead indicator when deciding interest rate policy. It may be worth noting that the unemployment rate this week fell to 3.4% in Japan, the inflation rate remained pegged close to zero.
Another American tradition that seems to be making its way across the pond is Black Friday, the big shopping day of the year. Analysts can use black Friday sales in America as a reflection on the state of the economy, as strong sales should indicate a confident consumer and therefore a strengthening economy. The US consumer despite, despite many tail winds remains subdued, with many stores offering bargains this weekend we shall see if the consumer is tempted to splash out.