Equity and bond markets continue to be driven less by economic developments, but more by the anticipated actions of central banks. Today the Bank of England, in what appears to be a further exercise in self-justification, hinted that they may look to cut interest rates again in November. The FTSE 100 rose the best part of 1% on that expectation. The minutes of the last meeting revealed the vote was unanimous in leaving rates unchanged. This vote would have also included the vote of Mr McCafferty, who at various points over the past few years have been a lone wolf in voting for a raise in interest rates.
Markets in the US were likewise boosted, not by an improving piece of economic data, but by a disappointing retail sales and manufacturing report, that analysts took to reduce the likelihood the Federal Reserve will raise interest rates at next week’s meeting.
Ten year gilt yields which hit a low of 0.5% a few weeks ago continue to climb higher, now trading at 0.89%. Two year yields trade at 0.14%. Investors demand for any form of income led to National Grid being able to raise 5-year debt at 1.125%. This is at a time when the equity in National Grid offers a current yield of over 4%.
Later on Friday we get the inflation data for the US economy for August, as well as the Michigan consumer sentiment report. The nightmare scenario for all concerned will be a continuing pick-up in inflation, at a time when economic growth remains lack lustre.
Having been documenting the equity sentiment, the movements in the bond markets, the words of central bankers, over the past few years you often feel a little like Bill Murray in Groundhog Day. Equity sentiment is cautious. Bonds, gold and money markets are favoured by savers. The World Bank and IMF continue to issue cautious words on their fears for the global economy. Economic analysts continue to express the view that the central bankers of the world are running out of options to boost the economy. Central bankers on the other hand go at lengths to suggest they are not.
On the 23rd of November Philip Hammond will make his first attempt to set out the government’s spending and taxation plans for the coming year. Philip Hammond has so far kept council about his views on the impact on Brexit. Expectations are that he will announce a series of infrastructure projects to help boost the UK economy. You might have thought it would have been wiser of the Bank’s monetary policy committee to remain non-committal on their next assumptions for interest rates until they had heard the Autumn statement.